Mexican Peso Slips as Inflation Data Fuels Rate Cut Expectations

The Mexican peso weakened slightly on Thursday morning, as reported by Reuters. The local currency retreated against a globally advancing dollar following the release of domestic inflation figures.

These numbers reinforced expectations that the Bank of Mexico (Banxico) would continue to ease its monetary stance. The spot exchange rate stood at 20.4610 pesos per dollar.

Compared to yesterday’s official close of 20.4164 units, this movement represented a decline of 4.46 cents for the Mexican currency, equivalent to 0.22 percent. The dollar price fluctuated between a high of 20.5042 units and a low of 20.4010 units.

Mexico’s headline inflation decelerated more than anticipated in December, reaching 4.21% year-on-year. This marked its lowest level since February 2021. Meanwhile, the core index rebounded to 3.65% after 22 consecutive months of decline.

Banamex analysts projected a gradual downward trend for general inflation, maintaining their estimates for general and core inflation at 3.8% and 3.7% respectively by the end of 2025.

Banxico has initiated a rate-cutting cycle in response to moderating inflation. However, this move has contributed to the peso’s weakness by narrowing the interest rate differential with the United States.

Investors eagerly awaited the central bank’s minutes, set for release later in the day. Grupo Financiero Monex analysts noted that the Mexican peso remained in negative territory.

They attributed this to the decrease in local inflation figures, which strengthened the narrative for more aggressive rate cuts by the Bank of Mexico.

The dollar’s strength also played a role in the peso’s depreciation. The Dollar Index (DXY), which measures the greenback against a basket of six reference currencies, advanced 0.10% to 109.11 units.