Mexican Peso dips as US Core PCE renew Fed hawkish bets
The Mexican Peso loses some traction against the US Dollar on Wednesday as traders seem confident that the Federal Reserve could raise interest rates toward the end of the year, following a red-hot inflation report. The USD/MXN trades at 16.95, after reaching a daily low of 16.92.
On Wednesday, the Mexican Peso experienced a slight dip against the US Dollar as traders grew optimistic about potential Federal Reserve rate hikes, according to wire material <source 65230543-3a9>. The USD/MXN exchange rate stood at 16.95 after dipping to a low of 16.92. The US Core Personal Consumption Expenditures (PCE) report for July aligned with analysts' expectations and matched June's inflation reading of 3.3% year-over-year (YoY).
However, the headline PCE figure remained steady at 3.7% YoY for the second month in a row, surpassing forecasts of 3.6%. This stagnation in disinflation sparked concerns of higher interest rates in the US. Money market surveys indicated a 74% probability of a 25-basis-point (bps) rate increase at the July meeting, as reported by Prime Terminal.
US durable goods orders climbed by 1.1% in July, outpacing expectations and June's 0.5% reading, driven by transportation equipment sales. Meanwhile, the Bank of Mexico (Banxico) unveiled its Q2 2026 Quarterly Report, projecting GDP growth to range between 1.1% and 1.5% and inflation to converge to its 3% target by late 2027, which is a slower pace compared to the previous forecast.
Core inflation is expected to rise to 3.5%, also meeting the central bank's 3% objective by year-end. Economic activity in Mexico slowed due to uncertainty surrounding the USMCA review. Looking ahead, the US economic calendar will include Initial Jobless Claims on Thursday and Federal Reserve Chairman Kevin Warsh's speech at the Jackson Hole Symposium.
The USD/MXN rate held under a medium-term descending resistance trend line around 17.3219, while the Relative Strength Index (RSI) at 31.65 indicated weakening downside momentum but not yet a reversal. The Mexican Peso's value is influenced by factors such as the Mexican economy's performance, the central bank's policy, foreign investment levels, remittances from Mexicans living abroad, and oil prices as Mexico is a major exporter.
Banxico aims to maintain inflation within a 2%-4% band, adjusting interest rates accordingly. Strong economic indicators, like high growth, low unemployment, and elevated inflation, can boost MXN's valuation, while weak data may lead to depreciation. Emerging-market currencies like MXN tend to thrive during risk-on periods but weaken during market turbulence or uncertainty.
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