Market Analysis by Quasar Elizundia, Expert Research Strategist at Pepperstone
February 12, 2025 –
“The Mexican peso has shown resilience on Tuesday. Despite a series of adverse factors, the currency has managed to stay afloat and even post slight gains against the U.S. dollar.
First, it is essential to highlight the broad weakness of the U.S. dollar during the session. This movement takes place in a session marked by the testimony of Federal Reserve (Fed) Chairman Jerome Powell, who acknowledged that the U.S. economy still faces significant challenges. This dollar weakness has provided some relief to the Mexican peso, which managed to gain 0.2% on the day.
However, peso volatility persists. The currency has been impacted by concerning domestic economic data, such as the 1.4% month-over-month decline in industrial production in December, which exceeded market expectations on the downside. Additionally, Powell’s testimony reaffirmed that the Fed is in no rush to cut interest rates, which could generate further pressure on the peso.
Another factor affecting the peso’s volatility is the divergence between the Fed’s monetary policy and that of the Bank of Mexico (Banxico). While the Fed remains cautious, Banxico recently cut its interest rate by 50 basis points, which increases pressure on the Mexican currency.
Inflation is another key element to consider. Global trade tensions could maintain inflationary pressures and reinforce the Fed’s restrictive stance, which in turn could negatively affect the peso. In this regard, the key data point will be the U.S. CPI, which is set to be released tomorrow and is expected to decline to 3.1% in core inflation, still above the 2% target. A higher-than-expected figure would favor the dollar, while a lower-than-expected figure could provide temporary relief to the peso.
In conclusion, the Mexican peso remains in a complex situation. While it has shown resilience, global and local economic uncertainty, as well as the divergence between Fed and Banxico monetary policies, could generate further pressure on the currency. Investors and analysts will be closely watching the upcoming economic data, particularly U.S. core inflation.”
Analysis by Quasar Elizundia, Expert Research Strategist – Pepperstone