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Mexican Peso Mixed on Economy, Trade Uncertainty

October 24, 2019 at 18:32 by Andrew Moran

Mexican peso notes in assortmentThe Mexican peso is mixed against several major currency pairs on Thursday as investors remain uncertain as to how to trade the country and the currency. There are signs that the economy is still slumping, despite cuts to interest rates and a populist left-leaning government willing to spend money. With trade uncertainty lingering in the background, the peso might be in store for some choppy waters.

In August, Mexico’s economy tumbled 0.9% from the same time a year ago, falling short of market forecasts of 0.1% growth. This is down from the previous month’s 0.3% gain. Economic activity has contracted in four of the eight months in 2019, driven by overall weak industrial output, though production capacity improved in August.

So far this month, inflation has been relatively tame. In the first half of October, consumer price data found that annual inflation was 3.01%, lower than the median estimate of 3.04%. In contrast, the second half of September saw consumer prices jump 0.4%.

With the central bank pegging 3% as its target inflate rate, Banxico could pull the trigger on another rate cut. This would inevitably please the President Andres Manuel Lopez Obrador government, especially with the latest economic figures, though AMLO denies that a recession is on the horizon.

On Tuesday, the national statistics agency reported that the unemployment rate rose 0.1% to 3.8% in September, matching market expectations. This is the highest the jobless rate has been since the middle of 2016.

But AMLO has proposed measures to reverse the downward trend. His government will soon unveil a series of infrastructure projects proposed by the private sector that would resuscitate an anemic economy. The Mexican leader says these 1,600 projects, which total approximately $400 billion, would “reactivate” the nation.

Meanwhile, trade continues to hang over North America as US lawmakers have yet to ratify the USMCA. This has analysts warning that the peso will likely weaken next year, should Washington fail to pass the trade deal. Mexico is also being impacted by US-China trade tensions that experts say would send the peso lower by as much as 20% in 2020.

The USD/MXN currency pair advanced 0.18% to 19.1498, from an opening of 19.1157, at 18:22 GMT on Thursday. The EUR/MXN slipped 0.04%, from an opening of 21.2784.

If you have any questions, comments, or opinions regarding the Mexican Peso, feel free to post them using the commentary form below.

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