Mexican Peso bolstered by US CPI meeting expectations but nothing more

• The Mexican Peso chalked in a second day of gains against the Greenback on Wednesday.
• Mexico’s recent rate cut despite an uptick in inflation has left Peso markets in a bind.
• US CPI figures cooled to expected levels, but investors were hoping for more post-PPI.

The Mexican Peso (MXN) found extra room on the high side on Wednesday, bolstered by a lopsided US Dollar (USD) after US Consumer Price Index (CPI) inflation figures cooled to the expected levels. However, markets were hoping for firmer signs of easing inflation pressure after this week’s US Producer Price Index (PPI) showed a steeper-than-expected decline in business-level price growth.

Mexico continues to grapple with inflation pressure of its own, but the Mexican Central Bank (Banxico) delivered a recent rate cut anyway. Banxico Governor Victoria Rodriguez Ceja cited an 18-straight month decline in core price inflation as an impetus for the quarter-point rate cut earlier this week, stating that an uptick in headline inflation to nearly 5.6% should get smoothed out “at the end of 2025”.

Daily digest market movers: Odd expectations deliver odd market flows post-US CPI

• US CPI inflation broadly printed as markets expected, with core CPI inflation ticking down to 3.2% YoY from the previous 3.3%.
• Both headline and core CPI ticked up to 0.2% MoM, also as-expected.
• Annualized CPI also shifted lower to 2.9% in July, below the forecasted hold at 3.0%.
• Despite continued easing in YoY CPI inflation figures, investors were broadly expecting a more significant decline after this week’s US PPI inflation print showed a steeper decline in upstream cost growth. However, declining cost pressures don’t appear to be getting passed onto consumers as fast as many had hoped.

Mexican Peso price forecast: Peso still struggling to find a recovery despite near-term reprieve

The Mexican Peso (MXN) clawed back roughly nine-tenths of one percent against the Greenback on Wednesday, dragging USD/MXN below 19.00 before running into a technical floor near 18.80. The Peso has recovered over 6% after hitting a 22-month low against the US Dollar that sent USD/MXN above the 20.00 handle earlier this month.

Despite a near-term recovery in Peso bids, USD/MXN still leans heavily in favor of Greenback buyers as the pair trades well north of the 200-day Exponential Moving Average (EMA) at 17.59. The pair is also still up nearly 16% from the year’s bottom bids of 16.26.

USD/MXN daily chart