Mexican Peso Retreats

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Mexican Peso Retreats

Mexican Peso Retreats Ahead Of Central Bank Meeting

Mexican Peso (MXN) is trading on a weaker note on Tuesday and has also retreated some of its gains from Monday. It seems that the Mexican Peso (MXN) is experiencing profit-taking after gaining 3.9% in the last rally.

It is important to note that the Mexican Peso (MXN) gained 3.9% against the US Dollar, GBP, and EUR. So, some retreatment at this stage is nothing but a technical correction. Also the FOMC meeting is also a reason why the Mexican Peso (MXN) price action is showing hints of caution.

Mexico'S Interest Rate Is 10.75%

With just a day left in the FOMC, the debate over whether the Fed will deliver a 0.25% or a 0.50% is still ongoing. A deeper-than-expected rate cut will be beneficial for the Mexican Peso (MXN) and other currencies.

Any rate cuts by the US central bank will further widen the gap between the interest rate of the two currencies. The most obvious reaction to this will be further weakness of the USD/MXN.

Banxico has set an interest rate of 10.75%, while the Federal Reserve's rate is around 5.25% - 5.50%. After the rate cut, it will come down to around 4.75 - 5.25%, which will make the Mexican Peso (MXN) a better option.

So, the most obvious outcome of the upcoming rate cut from the Federal Reserve will be a flow of capital into the MXN and out of the USD.

The US Retail Sales was also released recently which showed a 0.1% m/m reading in August against the 1.1% seen in July. The retail sales reading for August has diminished any hopes that the Fed will deliver a bigger rate cut.

If we look at the Mexican Peso (MXN) against the GBP, it is also on the back foot as the BoE meeting is happening on Thursday.

Right now, the Mexican Peso (MXN) is going through some selling, but it will be short-lived as a lot of central banks are expected to deliver rate cuts.

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