By Antonio Di Giacomo, Senior Market Analyst at XS.com
The Mexican peso started the February 9 session appreciating against the U.S. dollar, benefiting from broad-based weakness in the greenback across international markets. During the session, the exchange rate briefly touched levels near 17.16 pesos per dollar. However, it was not immune to intraday volatility and mixed movements, reflecting an environment that remains sensitive to external factors.
This positive performance occurred amid increased risk appetite for emerging-market currencies, driven mainly by the dollar’s downward correction. Throughout the session, investors adjusted positions in response to signs of reduced structural strength in the U.S. currency, allowing the peso to consolidate as one of the best-performing currencies in the emerging-market segment.
On the domestic front, markets reacted to the release of Mexico’s January inflation data published by the National Institute of Statistics and Geography. Headline inflation stood at 3.79% year over year, up slightly from the previous month but marginally below market expectations.
However, attention focused on core inflation, which surprised to the upside and reinforced the perception that more persistent inflationary pressures have not yet fully dissipated. This component, key to assessing monetary policy, suggests that the convergence process toward the inflation target could be more gradual than previously anticipated.
Under this scenario, analysts believe the Bank of Mexico’s cautious stance, recently adopted, is justified after pausing its interest rate-cut cycle. The prevailing expectation is that this pause could extend into the coming months until a clearer, more sustained slowdown in core inflation is observed.
Meanwhile, the U.S. dollar recorded a significant decline globally, with the dollar index falling more than 0.6% during the session. This move reflected a combination of macroeconomic factors, including adjustments in expectations regarding U.S. monetary policy and growing scrutiny over the strength of international demand for dollar-denominated assets.
Additionally, market speculation about a potential reduction in China’s exposure to U.S. Treasury bonds added further downward pressure on the U.S. currency. These reports fueled concerns over financing flows into U.S. debt and reinforced the dollar’s weakness against a broad basket of currencies.
In this context, the Mexican peso was clearly favored, supported by both external factors and a relatively solid domestic macroeconomic framework. The combination of a weaker dollar, still-elevated local interest rates, and prudent monetary policy continues to position the peso as one of the most attractive emerging-market currencies in the short term.
In conclusion, the strengthening of the Mexican peso observed in early February reflects a delicate balance between global and local factors. While dollar weakness and increased risk appetite provide support for the currency, the persistence of underlying inflationary pressures in Mexico maintains a cautious bias in monetary policy. In the coming weeks, the dollar’s evolution, central bank decisions, and the inflation trajectory will be key in determining whether the peso can consolidate its gains or enter a phase of heightened volatility.