Mexican Peso defies Fed hike bets as Banxico signals longer pause

The Mexican Peso (MXN) rebounded against the US Dollar (USD) on Wednesday, following projections of a higher US inflation report, which led to speculation of additional Federal Reserve (Fed) rate increases. The USD/MXN exchange rate currently stands at 18.60, marking a 0.11% decrease. In October, US inflation surpassed expectations; however, headline CPI saw a slight decline from 0.6% to 0.4% month-over-month.

Core CPI remained constant for the third consecutive month at 0.3% month-over-month, aligning with expectations of a 0.3% increase, similar to the forecast of Fed Governor Christopher Waller. If underlying inflation reaches 0.3%, Waller suggested a potential 50-basis-point rate hike. Post-report, financial markets adjusted their forecasts, with expectations that the Fed would raise rates by 25 basis points in December, as indicated by the CME FedWatch Tool.

Banks like Deutsche Bank and Goldman Sachs anticipate a quarter-percentage-point increase in December. Meanwhile, Mexico's National Statistics Agency (INEGI) reported that October's inflation surged from 3.45% to 3.75% year-over-year, which was higher than the expected rate. The core figures remained unchanged for the third month in a row, at 0.3% month-over-month, surpassing economists' estimates of 0.2% and aligning with Fed Governor Christopher Waller's prediction.

Banxico's Governor Rodriguez Ceja acknowledged that the board was contemplating a rate reduction since October, stating that keeping the rate at its current level - 6.25% - for an extended period would help bring inflation in line with the target and address external macroeconomic challenges.