FX.co ★ Mexican Peso Strengthened to 10-Month High

The Mexican peso has recently appreciated to approximately 18.81 per USD, reaching a ten-month high. This improvement can be attributed to several factors, including diminishing geopolitical tensions, dovish indications from the Federal Reserve, and strong domestic economic fundamentals. Although there was a slight increase in unemployment to 2.7% in May, the job market remains exceptionally tight, which continues to support consumer spending and maintain income levels. This environment persists even as the GDP saw a slight contraction in the first quarter, reinforcing Banxico's cautiously accommodative approach and sustaining the attractiveness of carry trade flows. Banxico implemented a widely expected 50 basis point interest rate cut, bringing rates down to 8%. This decision was made despite a headline inflation rate of 4.51%, which has resulted in narrowed nominal interest rate spreads while maintaining real yields and mitigating volatility by tying further rate reductions to forthcoming economic data. On the international front, advancements in US-China trade discussions, particularly concerning rare-earth exports, along with President Trump's ongoing criticisms of the Federal Reserve, have strengthened the anticipation of US interest rate cuts. This has weakened the US dollar, providing additional support to the peso.