Mexican Peso Extends Gains, Recovers 2.55% Over the Week

The local currency advanced in the final session of a week marked by U.S. inflation data and information on the monetary policies of both Banxico and the Fed.

The Mexican peso appreciated against the dollar this Friday, extending its strong gains accumulated over a week influenced by U.S. inflation data that fueled expectations of rate cuts in the United States.

The exchange rate ended this session at 17.6223 pesos per dollar. Compared to Thursday’s close of 17.7871 pesos, according to Banco de México (Banxico) data, this movement represented an improvement of 16.48 cents or 0.93 percent for the local currency.

The dollar traded within a range, hitting a high of 17.8100 pesos and a low of 17.6172 pesos. The Intercontinental Exchange’s U.S. Dollar Index (DXY), which compares the dollar to a basket of six major currencies, fell 0.34% to 104.08 units.

Over the week, from the previous Friday’s close of 18.0838 pesos, the peso recovered 46.15 cents or 2.55 percent. This movement was driven by expectations that the Federal Reserve (Fed) will soon lower interest rates.

This week, consumer price data and testimony from Fed Chairman Jerome Powell fueled bets on a rate cut. The Consumer Price Index (CPI) decreased by 0.1% month-on-month, and Powell stated that they would not wait for the annual rate to reach 2% before cutting rates.

On Friday, the U.S. Producer Price Index (PPI) data was released. Although it showed a moderate increase, it was not enough to affect expectations that the first rate cut will come at the Fed’s next meeting in September.

According to CME’s Fed Watch tool, futures markets are pricing in an 88.1% probability that the Fed will cut rates in September. This has weakened the dollar against its major peers, benefiting the peso, which is also supported by local inflation.