Mexican peso declines ahead of the Fed’s Federal Open Markets Committee (FOMC)

he Mexican peso continues to trade under pressure, hovering near multi-year lows, as investors remain cautious ahead of the U.S.

Federal Reserve’s monetary policy decision, which will be announced today. The USD/MXN is currently up around 0.3% during the session.

Market attention is focused on Federal Reserve Chair Jerome Powell’s speech.

While the Fed is widely expected to keep interest rates unchanged, Powell’s tone will be crucial. A hawkish stance could strengthen the U.S. dollar, putting downward pressure on the Mexican peso.

Conversely, a dovish tone could favor the peso.

On the domestic front, Mexico’s labor market data showed an unexpected improvement. The unemployment rate in December 2024 fell to 2.4%, its lowest level since March, according to INEGI data. This figure came in below market forecasts and the 2.6% recorded in December 2023. However, labor informality remains high, affecting more than half of the workforce, posing a persistent challenge for Mexico’s economy.

The Fed’s decision today and Banxico’s upcoming interest rate decision next week will be key events shaping the peso’s short-term trajectory. If Banxico accelerates rate cuts, as hinted in its latest statement, selling pressure on the peso could intensify.

Markets expect Banxico, at its February 6 meeting, to announce a 25-basis-point rate cut, bringing the benchmark rate down from 10.00%. This expectation is based on recent inflation declines and signals from the central bank indicating potentially more aggressive cuts early in the year.

However, the final decision will depend on economic data trends, including key indicators like GDP. These will be crucial in assessing Mexico’s economic resilience against external pressures and exchange rate volatility.

Closely monitoring these indicators is essential to anticipate the peso’s movement. Mexico’s economic strength will be a crucial factor in determining whether the peso can withstand pressures from Fed and Banxico policies, as well as the uncertain future of U.S.-Mexico trade relations.