Mexican Peso Strengthens Ahead of U.S. Inflation Data

The local currency strengthened after a session of erratic movements in a cautious market awaiting tomorrow’s release of U.S. consumer inflation data.

On Tuesday, the Mexican peso modestly gained ground against the dollar. Following a volatile trading session, the peso showed a moderate recovery, driven by market anticipation of key inflation figures from the United States.

The exchange rate closed the day at 20.1710 pesos per dollar, compared to an official close of 20.2004 pesos on Monday, according to data from the Bank of Mexico (Banxico). This marks a gain of 2.94 cents for the USD/MXN, equivalent to a 0.15% increase.

USD/MXN

During the session, the dollar traded within a range of 20.3305 pesos at its highest and 20.1459 at its lowest. Meanwhile, the U.S. Dollar Index (DXY) from the Intercontinental Exchange, which measures the greenback against a basket of six major currencies, rose 0.24% to 106.39 points.

CPI and Inflation Data

Market participants are closely monitoring tomorrow’s release of the U.S. Consumer Price Index (CPI), which is expected to provide insight into the Federal Reserve’s future interest rate decisions ahead of its upcoming meeting on December 17–18.

Federal funds futures, tracked by CME Group’s FedWatch tool, currently indicate an 86% probability of a 25-basis-point rate cut at the next meeting. However, the likelihood of no change in January stands at 70%.

Persistent inflation could bolster the Fed’s less accommodative stance and delay rate cuts, which would be unfavorable for the peso. Conversely, signs of easing inflation could lead to a more dovish approach, offering support to the Mexican currency.

On the domestic front, the National Institute of Statistics and Geography (INEGI) released data on the Consumer Confidence Index, which dropped to 47.7 points in November from 49.5 in October. This decline reflects a less optimistic view among consumers regarding the country’s economic situation. Respondents indicated that the current economic environment is “worse than 12 months ago,” with increased pessimism about the next 12 months as well.

Ignacio Teson

Economist and Financial Analyst

Ignacio Teson is an Economist and Financial Analyst. He has more than 7 years of experience in emerging markets. He worked as an analyst and market operator at brokerage firms in Argentina and Spain.