- The Mexican Peso tries to find a floor after losing an average of roughly 5% in its most traded pairs so far this week.
- Weakness has come about as a result of cooler inflation data, weaker retail sales and political factors.
- Technically, USD/MXN extends its uptrend within a rising channel.
The Mexican Peso (MXN) trades just off its lows of the week on Friday after a run of three consecutive days where it lost a minimum of over 1.0% in value per day, in its three most-traded pairs (USD/MXN, EUR/MXN and GBP/MXN). This brings the Peso’s total depreciation so far this week to between 4.0% and 6.0% depending on the pair in question.
A combination of cooler-than-expected Mexican inflation data for August, weaker retails sales in July and resurfacing concerns regarding the impact of proposed changes to the Mexican constitution by the new government, are weighing.
These factors, and the unwinding of the carry trade, in which investors borrow in a currency where interest rates are low – like the Japanese Yen (JPY) – in order to purchase a currency where interest rates are high – like the Peso – (thereby pocketing the differential) are providing headwinds for the Peso.
The decline in Mexican 1st half-month inflation and core inflation in August indicates a greater chance of a further 0.25% cut in interest rates in September. Since lower interest rates are negative for a currency – as they reduce foreign capital inflows – MXN is pressured lower.
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