Key points:
The Mexican peso (MXN) showed notable strength, trading past 17.8 per USD and continuing its recovery from the fifteen-month low of 18.75 seen on June 12th. This appreciation is largely attributed to the weakening US dollar, driven by expectations of a more dovish Federal Reserve.
Softer-than-expected US inflation data has fueled speculation that the Fed might slow down or halt its rate hikes, reducing the appeal of the greenback.
Picture: The US dollar losing strength against the Mexican peso, as observed on the VT Markets app.
The latest minutes from the central bank of Mexico, Banxico, highlight ongoing inflation concerns. With the Mexican annual headline inflation rising to 4.98% in June, Banxico remains cautious in its stance.
This inflation spike, combined with consumer confidence climbing to 47.5, reinforces the need for firm monetary policy.
Such a conservative approach by Banxico is justified by the persistent price pressures, suggesting that any premature easing of monetary policy could undermine efforts to stabilise inflation.
Related topic: Interest rate tug-of-war for central banks
Market implications and opportunities
Given the ongoing inflation challenges and a cautious stance from Banxico, the Mexican peso may continue to appreciate in the short term. Such a backdrop can offer lucrative entry and exit points for day trading in the MXNUSD currency pair.
In doing so, traders should be wary of the potential for sudden market shifts triggered by other political and economic developments, where proper risk management is vital.
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