Tuesday, July 23, 2024

With boost from US economic data, peso appreciates for third day in a row

The Mexican peso appreciated against the US dollar for a third consecutive day on Thursday, but the currency remains above 18 to the greenback.

Bloomberg data shows that the peso was trading at 18.10 to the dollar at 3:30 p.m. Mexico City time.

It was slightly stronger earlier in the day, reaching 18.06 peso to the dollar.

The peso closed at 18.37 to the dollar on Monday before appreciating on Tuesday, Wednesday and Thursday. The currency has gained around 1.5% since its closing position on Monday and 0.4% since its closing position on Wednesday.

There was little change in the USD:MXN exchange rate after President-elect Claudia Sheinbaum announced four additional cabinet appointments on Thursday.

The Monex financial group said Thursday morning that the peso had strengthened on the back of economic data out of the United States and the impact of that data on expectations about a future interest rate cut by the Federal Reserve.

The seal of the U.S. Federal Reserve
Monex attributed the peso’s appreciation to the expectation that the U.S. Federal Reserve will soon cut interest rates for Mexico’s northern neighbor. (Kurtis Garbutt/Flickr)

U.S. company Automatic Data Processing released a National Employment Report on Wednesday showing that private sector employment in the U.S. increased by 150,000 jobs in June. That provided a sign that the U.S. economy is slowing and increased expectations that the Fed could cut its federal funds rate in the not-too-distant future.

In addition, minutes released on Wednesday from the Fed’s June 11-12 monetary policy session showed that Federal Open Market Committee (FOMC) members acknowledged the U.S. economy appeared to be slowing and that “price pressures were diminishing.”

Mexico’s Banco Base said that it expects the Fed to announce an interest rate cut on Sept. 18, although Federal Reserve Chair Jerome Powell said Tuesday that more data showing the U.S. is on a “disinflationary path” is needed before a cut can occur.

The FOMC members will meet on July 30 and 31, and again on Sept. 17 and 18.

The peso has benefited for an extended period from the significant difference between the Bank of Mexico’s benchmark interest rate, currently set at 11%, and the Fed’s federal funds rate, set at a 5.25%–5.5% range.

According to foreign exchange news website FX Street, the peso also got a boost on Thursday from a post to X by Bank of Mexico board member Jonathan Heath.

He wrote that he “completely agreed” with Powell’s assessment that “more benign inflation data is needed” before rates can be cut.

“He said it for the Federal Reserve, but it applies equally to the case of Mexico,” Heath said.

Inflation in Mexico has been on the rise since March, with an annual headline rate of 4.78% reported for the first half of June.

The peso appreciated to an almost nine-year high of 16.30 to the dollar in April, but it depreciated sharply after Claudia Sheinbaum’s victory in the June 2 presidential election and the ruling Morena party’s comprehensive win in the congressional elections the same day.

The peso has recovered somewhat after depreciating to 18.99 to the dollar last month, but at 18.10 to the greenback it remains about 6% weaker than it was just before the elections.

With reports from Expansión and Milenio

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