The Mexican Peso strengthened on Friday against the US Dollar following the release of the Federal Reserve’s (Fed) favored inflation measure, the core Personal Consumption Expenditures (PCE) Price Index, which came in slightly lower than expected. This supports the view that the disinflation trend is advancing, potentially paving the way for the Fed to cut rates, a scenario that would weaken the USD. At present, USD/MXN is trading at 19.64, down 1.01%.

Despite no major economic announcements from Mexico last week, uncertainty remains around the proposed judiciary reform and the elimination of autonomous bodies backed by President Andres Manuel Lopez Obrador, which could create some investor anxiety as the new Mexican Congress begins its term.

Meanwhile, the Bank of Mexico (Banxico) revised its economic growth forecasts downward, projecting the Gross Domestic Product (GDP) for 2024 to fall from 2.4% to 1.5% and for 2025 from 1.5% to 1.2%, based on its latest quarterly review. Banxico Governor Victoria Rodriguez Ceja cautioned that changes to the primary reference rates would be made gradually and only if macroeconomic conditions allowed.

Most financial institutions expect Banxico to cut rates by at least 50 basis points (bps) for the remainder of 2024, which could exert additional pressure on the Mexican Peso, already down 15.38% year-to-date.

Across the border, US data shows the disinflation trend continues, with the core PCE index declining annually while headline inflation remains stable. The University of Michigan (UoM) Consumer Sentiment survey for August reported an improvement for the first time in five months, beating preliminary figures. The survey also showed a dip in one-year inflation expectations, while the five-year outlook remained unchanged.