FX.co ★ Mexican Peso Strengthens to August 2024 Highs

In July, the Mexican peso advanced beyond 18.65 per USD, marking its strongest point since mid-August 2024. This appreciation is attributed to bolstered external inflows, a weaker US dollar, and Mexico's continued stringent monetary policy. Externally, the unexpectedly substantial US fiscal package in June, coupled with the approaching tariff deadline under former President Trump, has pressured the dollar. Meanwhile, Mexico's trade surplus of $1.03 billion in May, along with record remittances exceeding $5.5 billion, has ensured a steady influx of foreign currency into the country. Domestically, the decision by Mexico's central bank, Banxico, on June 26th to reduce its key interest rate by 50 basis points to 8%, while also asserting that further cuts would depend on concrete disinflation, has maintained an attractive real interest rate, thus supporting the peso's yield differentials. Additionally, with unemployment at a decade-low of 2.7% and Mexico's Purchasing Managers' Index (PMI) at 46.3 in June outshining most of the region, the peso has found support in robust economic growth indicators.