FX.co ★ Mexican Peso Holds Strong

The Mexican peso has appreciated to approximately 17.9 per US dollar and is set to realize an annual increase of about 16%. This rise comes as markets integrate stronger domestic economic performance amid an anticipated gentler policy stance from the United States. The unemployment rate in Mexico decreased to 2.7% for the quarter ending in November. However, reduced participation rates and broader labor measures that account for discouraged and informal workers indicate a complex labor market situation beyond the headline figures. Economic activity showed unexpected strength, with the activity index increasing by 1.7% year-over-year in October. This performance countered concerns of a more pronounced economic slowdown. Meanwhile, core inflation remained persistently above 4%, prompting Mexico's central bank, Banxico, to maintain a cautious stance. On December 18, Banxico reduced its policy rate by 25 basis points to 7.00% in a 4-1 vote, signaling a pause contingent on data, rather than an outright easing cycle. This approach keeps local yields appealing when compared to developed markets and continues to support portfolio inflows. Internationally, a weakening US dollar and forecasts for the Federal Reserve to ease policies next year have helped narrow interest rate differentials.