Mexican peso reaches 20.50 pesos per USD amid inflation risks and optimism over growth

Market Analysis by Quasar Elizundia, Expert Research Strategist at Pepperstone

– November 23, 2024 –

“The Mexican peso is on track to record its sixth consecutive week of lossesagainst a strong U.S. dollar. The US currency is supported by rising geopolitical tensions and a more hawkishFederal Reserve. Despite this, recent economic data from Mexico suggeststhe currency’s decline may moderate in the near term.

In September, Mexico’s economic activity showedmodest growth, expanding by 0.2% month-to-month and 0.3% year-on-year, supported by strong performance in the primary and secondary sectors. Notably, the third-quarter GDP posted a1.1% quarterly expansion, marking thefastest growth since early 2022. While industrial performance remains uneven, the broader economic outlook provides some near-term optimism for the peso.

However,inflationary pressurescould dampen investor sentiment. Annual inflation reached4.56% in October, with core prices rising by 3.58% year-on-year.Non-core prices saw a significant 7.64% rise, driven mainly by higherenergy costs and agricultural products.

Although inflation remains relatively under control, it presents challenges for an emerging economy, especially when some of the pressure stems from external factors, complicating theBank of Mexico’s policy decisions. The uncertainty, whether to reduce rates to support economic growth or to curb inflation,could impact the currency’s stability in the near to medium term, making investors cautious. While Mexico’s stable growth trajectory offers optimism, inflation and monetary policy concerns continue to pose key risks for the peso’s recovery.”