FX.co ★ Mexican Peso Strengthens to July 2024 Highs

The Mexican peso reached its highest value since July 2024, climbing to $18, following the Bank of Mexico's decision to reduce its benchmark interest rate by 25 basis points to 7%, a move that was widely anticipated. This rate cut is a continuation of a year-long easing cycle, indicating the central bank's confidence that inflation will eventually align with their 3% target, even as core inflation remains above 4% and the domestic economy shows signs of weakness. The peso's appreciation was further bolstered by U.S. inflation data, which indicated a softening of price pressures in November. The core Consumer Price Index (CPI) increased by 2.6% year-over-year, marking the slowest growth since early 2021, while the headline CPI rose by 2.7%, marginally below expectations. This report exerted pressure on the U.S. dollar, enhancing market sentiment that U.S. inflation might be cooling. However, there is still ambiguity regarding the Federal Reserve's future rate decisions due to uncertainties stemming from the federal government's shutdown.