The peso weakened past 18 per US dollar in early Friday trading, following the Bank of Mexico’s unexpected move to lower its benchmark rate to 6.75% and increased global risk aversion.
Mexico’s currency, which is weakening for a third consecutive trading day, is experiencing pressure from a stronger US dollar and concerns about inflation, as well as geopolitical risks impacting oil supplies in the Middle East.
The currency was trading at 18.0197 units to the US dollar in the early morning, down nearly 0.5% from Thursday’s close of 17.93.
The peso had not been above 18 since early December as traders reacted to the central bank’s decision to resume its easing cycle.
The brokerage firm XTB said the depreciation of the peso reflects a profound adjustment in how the market is valuing Mexico, “primarily explained by internal factors … but amplified by signs of weakening external factors and an increasingly complex macroeconomic environment.”
Among the internal factors was the unexpected rate cut, which was primarily driven by perceived economic vulnerabilities including rising unemployment.. Underemployment at 7.0% and high informal employment at 54.8% were also drivers of the bank’s decision and of equal concern to traders.
The bank’s move broke with the prevailing market expectation, which anticipated a more cautious stance due to the persistence of inflationary pressures.
Just days earlier, the national statistics institute INEGI reported that the annual headline inflation rate reached 4.63% through the first 15 days of March, up considerably from the 4.02% recorded at the end of February.
XTB also described the unanticipated trade deficit as a relevant data point. Mexico’s trade balance shifted to a US $0.46 billion deficit in February, reversing a previous surplus, as imports surged 20.8% annually to US $57.31 billion, outpacing a 15.8% rise in exports (US $56.85 billion).
Global sentiment has put further pressure on the peso: The dollar strengthened after reports that U.S. President Donald Trump had extended a deadline to attack Iranian energy infrastructure — even as the Pentagon considers sending 10,000 more troops to the Middle East.
With reports from Reuters, El Informador, Excelsior and Radio Fórmula
