Mexican peso depreciates in line with other currencies awaiting the Fed’s decision.

At the beginning of the session this Wednesday, March 20th, the Mexican peso experiences a decline against the US dollar, with the exchange rate standing above 16.80 units.

The exchange rate, from US dollar to Mexican peso, stood at 16.83 units, indicating a depreciation of 0.21% for the local currency. Thus, the Mexican peso reversed some of the gains achieved at the close of the previous session, where it recorded a 0.14% increase, according to quotations.

The retreat of the Mexican peso parallels the strengthening observed this morning in the dollar index, which measures the evolution of this currency against a basket of other six major currencies, as it showed an advance of 0.5% to 104.11 units.

The stability in inflation expectations, rate adjustments in other emerging markets, and the strength of the Mexican peso will help justify the rate reduction. However, a risk balance for prices that is still tilted to the upside and a narrower margin compared to the Fed would limit a more dovish rhetoric.

Nevertheless, the Mexican peso remains strong and at its best levels of the year.

Today, markets are awaiting the monetary policy decision from the Federal Open Market Committee (FOMC) of the Fed. The expectation is for monetary authorities to leave rates unchanged, within the current range of 5.25 to 5.50%.

This afternoon’s announcement will also set the stage for the monetary policy decision of the Bank of Mexico (Banxico) next Thursday, where a 25 basis point rate cut is expected.

If this move is confirmed, the Mexican central bank would be ahead of the Fed in lowering rates. However, markets have assimilated the high possibility that this initial cut will not mark the beginning of a rate-cutting cycle but rather an adjustment. It’s expected that Banxico will maintain interest rates at a restrictive level throughout the year.