Peso breaks past 18 to the dollar after Banxico’s surprise rate cut

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

Have something to say? Paid Subscribers get all access to make & read comments.
United States of America and Mexico flags

Goods from Mexico now make up almost one-fifth of the US import market

1
Mexico's share of the $332.92 billion U.S. import market in July was 18.2%, ahead of Canada (10.1%) and more than double that of China (8.1%).
Mexico's Foreign Affairs Minister Roberto Velasco shakes hands with his Chinese counterpart Wang Yi in Beijing

Mexico’s foreign affairs head seeks common ground with China in Beijing

0
SRE Minister Roberto Velasco's meeting with Chinese Foreign Minister Wang Yi takes place in the context of trade tensions between the two countries over tariffs that Mexico imposed this year.
Trump in Oval Office

Trump says Mexico is only good for ‘tamales and tomatoes.’ Trade data says otherwise

30
U.S. President Donald Trump reasserted on Friday that Mexico has "nothing" the United States needs — apart from "hot tamales" and "tomatoes" — and therefore the U.S. could cease trading with its southern neighbor.
BETA Version - Powered by Perplexity