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Mexican Peso Strengthens Despite Doubts Over USMCA

November 21, 2019 at 20:27 by Andrew Moran

A heap of 100-peso billsThe Mexican peso is strengthening against several currency pairs on Thursday, despite doubts over the trade agreement between the US, Mexico, and Canada. The peso is gaining on expectations of modest third-quarter growth and it is still getting a boost from the central bank recently cutting interest rates. 

Speaker of the House Nancy Pelosi told reporters that it is unlikely that the USMCA would be passed by the end of the year. She revealed that she is “not even sure if we came to an agreement today that it would be enough time to finish.” Pelosi was scheduled to meet with top US Trade Representative Robert Lighthizer to iron out final details that she says are necessary to earn the Democrats’ support. 

Pelosi said in remarks to the press: 

You’re either for enforcement or you’re for niceties, and we’d like to have both. 

However, Republicans say Pelosi and the Democrats have been delaying passing USMCA and, as a result, impacting the US economy. They argue that the Democrats have been spending most of their time on the impeachment inquiry of President Donald Trump, which, according to Republicans, has prevented the House from putting together any significant legislative measures. 

If the USMCA does pass within the 11 months, it would be a huge victory for the administration because President Trump ran on updating the North American Free Trade Agreement (NAFTA). He contended that it was the worst trade deal in history. 

Meanwhile, on the data front, inflation and gross domestic product (GDP) figures are scheduled to be released on Friday and Monday. The market is expecting the mid-month inflation rate for November to come in at 0.6% and investors are penciling a Q3 GDP growth rate of 0.1%. Analysts are also projecting that September economic activity is projected to show a 0.2% decline. 

But the Mexican government does predict economic growth for 2020 after the Bank of Mexico slashed rates by 25 basis points to 7.5%. This is the lowest rates have been since June 2018 and is a sign that the central bank is willing to offer a more accommodative monetary policy to help stimulate the economy and allow the government to initiate stimulus spending initiatives. 

The USD/MXN currency pair fell 0.41% to 19.3822, from an opening of 19.4657, at 19:18 GMT on Thursday. The EUR/MXN tumbled 0.56% to 21.4294, from an opening of 21.5573. 

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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