Mexican Peso Retreats Following Local Inflation Data

The Mexican peso depreciated against the U.S. dollar in Thursday’s trading, weighed down by local inflation data and low market liquidity due to the closure of U.S. markets.

The exchange rate ended the day at 20.4982 pesos per dollar, marking a decline of 8.18 centavos, or 0.40%, compared to the previous official close of 20.4164 pesos, according to Banco de México (Banxico). During the session, the dollar traded within a range of 20.4010 to 20.5241 pesos.

USD/MXN

Meanwhile, the U.S. Dollar Index (DXY), which measures the greenback against six major currencies, rose 0.14% to 109.15 points.

Inflation Data and Monetary Policy

Mexico’s annual inflation slowed in December to 4.21%, its lowest level since February 2021, but core inflation rose to 3.65%, reversing a 22-month decline. This mixed inflation data has raised expectations that Banxico will continue its rate-cutting cycle, diverging from the more hawkish stance of the U.S. Federal Reserve.

Minutes from Banxico’s recent meeting revealed that the central bank is open to considering larger rate cuts in future sessions. In December, Banxico reduced its benchmark rate by 25 basis points, marking the fifth cut of the year.

The USD/MXN weakness reflects these inflation figures, along with speculation about Banxico’s monetary easing, with the exchange rate testing its first resistance level at 20.50 pesos per dollar.

Stock Market Performance

In contrast to the currency’s decline, Mexican stock markets closed with gains during the low-volume session as Wall Street remained closed in observance of a day of mourning for former U.S. President Jimmy Carter.

The S&P/BMV IPC, the benchmark index of the Mexican Stock Exchange, rose 0.35% to 49,807.96 points, while the FTSE BIVA index increased 0.36% to 1,008.78 points.

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.