Mexican Peso Slips on Narrowing US-Mexico Rate Spread Bets
The Mexican peso weakened to near 18.7 per USD from the three-week high of 18.5 touched on November 9th amid prospects of a narrower US-Mexico interest-rate differential. Hotter-than-expected US inflation in October reinforced expectations of further Federal Reserve hikes. A narrower rate differential would pressure the peso by reducing carry trade. Still, recent data limits the room for looser policy by Banxico. Annual inflation rose to 3.75% from 3.45% in September, above forecasts of 3.65%, moving further above Banxico’s 3% target. Core inflation edged up to 3.80% from 3.75%, broadly in line with forecasts of 3.78%. The central bank unexpectedly cut its benchmark rate to 6.25% at its latest meeting and revised forward guidance, signaling rates would remain at the new level for an “extended period.” Meanwhile, the Democratic Party’s victory in the US midterm elections could soften trade pressures on Mexican growth.
The Mexican peso weakened to near 18.7 per USD from the three-week high of 18.5 touched on November 9th amid prospects of a narrower US-Mexico interest-rate differential. Hotter-than-expected US inflation in October reinforced expectations of further Federal Reserve hikes. A narrower rate differential would pressure the peso by reducing carry trade. Still, recent data limits the room for looser policy by Banxico.
Annual inflation rose to 3.75% from 3.45% in September, above forecasts of 3.65%, moving further above Banxico’s 3% target. Core inflation edged up to 3.80% from 3.75%, broadly in line with forecasts of 3.78%. The central bank unexpectedly cut its benchmark rate to 6.25% at its latest meeting and revised forward guidance, signaling rates would remain at the new level for an “extended period.” Meanwhile, the Democratic Party’s victory in the US midterm elections could soften trade pressures on Mexican growth.