The Mexican peso is currently under relative pressure, fluctuating in a context of global and local economic uncertainty.
Financial markets are closely watching the release of key U.S. economic data, including Q3 GDP growth and the Fed’s preferred inflation measure (PCE), which could impact the dollar’s trajectory and, consequently, the peso.
The expectation of a 25-basis-point rate cut by the Federal Reserve at its next meeting has created anticipation, although persistent inflation introduces an element of uncertainty regarding the future direction of its monetary policy.
A dovish (flexible) stance by the Fed could weaken the dollar, offering a reprieve to the peso. Conversely, a hawkish (restrictive) approach, with greater emphasis on controlling inflation, could strengthen the dollar and place downward pressure on the Mexican currency.
As observed in other emerging markets, global sentiment remains a critical factor for Latin American currencies.
Domestically, recent data reveals new unfavorable signals for the Mexican economy. The 0.3% decline in monthly retail sales in Mexico, according to INEGI data, suggests weak domestic demand. This, combined with the 1.2% annual contraction in retail sales in October 2024, extending a six-month negative streak, reinforces concerns about the fragility of Mexican consumption.
Sectors such as automotive services (-4.2%), stationery (-3.4%), and health and personal care products (-5.8%) experienced the sharpest declines, while appliance and electronics sales (+3.2%) offered a slight counterbalance. This situation increases the likelihood that the Bank of Mexico (Banxico) may consider interest rate cuts, a move that, while aiming to stimulate the economy, could add more pressure on the peso if the Fed opts for a less accommodative stance.
The upcoming Banxico interest rate decision adds another layer of complexity. Policymakers face the delicate balance of supporting economic growth while controlling inflation. A rise in foreign exchange market volatility is expected in the coming days, which could lead to more pronounced peso movements. Investors will need to closely monitor signals from both the Fed and Banxico, as these decisions will shape the direction of the Mexican peso in the short and medium term.
