FX.co ★ Mexican Peso Near 7-Month Highs

The Mexican peso strengthened to 19.40 per US dollar, approaching its peak of 19.38 on May 14th, over the past seven months. This movement was influenced by Moody's downgrade of US sovereign debt to Aa1 on May 16th and growing expectations of upcoming Federal Reserve interest rate cuts, which diminished the attractiveness of the US dollar. Domestically, the Bank of Mexico (Banxico) cut the interest rate by 50 basis points, bringing it down to 8.50 percent on May 15th. This decision came amidst overall and core inflation rates hovering around 3.9 percent and a marginal GDP growth of just 0.2 percent in the first quarter. While this has reduced Mexico's yield advantage, the Mexican peso's appreciation was primarily driven by the external weakness of the US dollar. Additionally, ongoing US-Mexico trade tensions continue to linger in the background, preventing significant investments in the Mexican currency.