FX.co ★ Mexican Peso Loses Ground Ahead of Banxico

The Mexican peso has slipped beyond 18.4 per US dollar, retreating from its peak level since July 2024, when it reached 18.29 on September 16th. This decline is a result of changes in inflation, growth forecasts, and monetary expectations, which have dimmed the peso's yield and capital flow advantages ahead of the upcoming Bank of Mexico's policy decision. Mid-month inflation in August dropped to 3.49% from July's 3.55%, highlighting that inflationary pressures are easing and diminishing the need for immediate additional tightening measures. Concurrently, domestic economic growth remains sluggish, characterized by feeble investment and only moderate consumer spending, suggesting a greater probability that Banxico will lean toward monetary easing rather than defending the currency. Markets anticipate a 25 basis point rate cut, bringing it down to 7.50% at the September meeting, marking the eleventh reduction since early 2024. This move would narrow the yield differential with the United States. Furthermore, the US dollar has regained strength following the Federal Reserve's policy shift and an increase in US long-term yields, further reducing the carry advantages for the Mexican peso (MXN).