Mexican Peso strengthens as Banxico hold extends 10-day rally

The Mexican peso strengthened for the 10th consecutive day, experiencing a 10-day rally that extended to 0.12% on Thursday. This gain followed the Bank of Mexico (Banxico) maintaining interest rates at 6.50% during its latest meeting, marking the second straight session with unchanged rates. Banxico held steady after concluding its easing cycle on May 7, acknowledging that both headline and core inflation are expected to decline, albeit more gradually than initially anticipated.

The central bank projected that headline and core consumer price indices (CPI) would reach 3% by the fourth quarter of 2027. Banxico also noted that economic slack is anticipated to persist throughout the forecast period, and substantial downward risks to economic activity remain. Positive US jobs data, with initial jobless claims at 199K for the week ending August 1, contrasted with expectations, while the US Challenger Job Cuts revealed a significant decline in planned layoffs in July.

St. Louis Fed President Alberto Musalem expressed hawkishness, stating that inflation remains well above the 2% target and emphasizing the importance of meaningful restraint on underlying inflation. Meanwhile, money markets priced in a 58% chance of a 25-basis-point Fed rate hike at the September 16 meeting. The USD/MXN exotic pair traded at 17.2109, showing a decline below clustered simple moving averages and a price that remains under a downward resistance trend line.

The Mexican Peso's value is influenced by various factors, including the performance of the Mexican economy, Banxico's policies, foreign investment, remittances from Mexicans living abroad, and geopolitical trends.