Mexican peso remains under pressure despite moderate inflation data

The Mexican peso is once again under pressure against the US dollar, following the release of Mexican inflation data that came in below market expectations.

This depreciation, reflected in a 0.25% increase in the USD/MXN pair on Thursday, adds to a global and local context marked by uncertainty.

The renewed strength of the dollar, driven by the resilience of the US economy –evidenced by data such as job openings and the non-manufacturing PMI– supports the narrative of a Federal Reserve (Fed) that is less inclined toward aggressive interest rate cuts.

Adding to this is the ongoing uncertainty surrounding the policies of the incoming Trump administration, especially regarding inflationary matters, which collectively exert upward pressure on the USD.

In contrast, the Mexican economy has recently shown unfavorable signs. Consumer confidence, released earlier this week, came in below expectations, reflecting growing caution among Mexican households. December inflation data, although close to the upper limit of the Bank of Mexico’s (Banxico) target range of 2% to 4%, with an annual rate of 4.21%, represents a downside surprise.

This data, in a context where Banxico now operates with fewer votes for its monetary policy decisions and under a governor previously inclined toward further normalization, opens the door to a more significant interest rate cut, possibly of 50 basis points, at the February meeting.

Inflation in Mexico opens the door to a more aggressive rate cut, which could intensify pressure on the peso. This move, by eroding the rate differential between Mexico and the United States, at a time when less easing is expected from the Fed, could further increase upward pressure on the USD/MXN pair.

Looking ahead, the upcoming inauguration of the Trump administration emerges as a crucial factor for the Mexican currency. Potential restrictive trade policies toward Mexico could generate volatility and exert greater pressure on the peso. Additionally, the release of the US non-farm payroll (NFP) data, with a forecast of 150,000 jobs added, adds another element of focus. A report indicating a tighter labor market than expected could further intensify negative pressure on the Mexican peso.

The combination of a less accommodative Fed, uncertainty around Trump’s policies, and the possibility of a more aggressive rate cut by Banxico sets up a challenging scenario for the Mexican peso in the short term. We will closely monitor these factors and their impact on the Mexican currency.