January 15, 2025 (Globalinvestorideas.com Breaking Stock Market News and Commentary) Investorideas.com, a go-to platform for big investing ideas releases market commentary from Quasar Elizundia, Expert Research Strategist at Pepperstone.
“The Mexican peso has shown resilience in recent sessions, stringing together three consecutive days of recovery against the U.S. dollar. This performance is supported by the weakness of the greenback, driven by positive surprises on the U.S. inflation front. However, the peso faces significant internal challenges that could influence its short-term trajectory.
U.S. inflation data has provided relief to the markets. Both the headline PPI and core consumer inflation came in lower than expected, with the latter settling at 3.2%, below forecasts. While headline inflation ticked slightly higher to 2.9%, this outlook has somewhat supported expectations for a less aggressive monetary policy stance from the Federal Reserve. This perspective, which anticipates less pressure to maintain elevated interest rates for much longer, has contributed to the peso’s appreciation. The relative easing of inflationary pressures in the U.S. creates a favorable context for emerging market currencies, including the Mexican peso.
Nevertheless, the Mexican economy faces challenges that cannot be overlooked. Gross Fixed Investment in October recorded a 4.5% year-on-year decline, impacted by a sharp drop in the construction sector, which experienced an 11.6% annual contraction, according to INEGI figures. This data, coupled with a 0.7% monthly contraction in Private Consumption, highlights the presence of headwinds for the domestic economy. The weakness in investment and domestic consumption creates a negative outlook for the peso in the short term, partially offsetting external momentum.
Looking ahead, attention is focused on the release of retail sales data in Mexico next Tuesday. A negative result could exert additional pressure on the peso. Internationally, expectations of Fed rate cuts in 2025 and, especially, the upcoming U.S. presidential inauguration, could increase volatility in currency markets. This latter factor, in particular, generates uncertainty and could affect risk currencies, placing pressure on the peso. Political uncertainty in the U.S. adds a layer of volatility that currency markets will need to digest.
In summary, the Mexican peso finds itself at a crossroads. While relatively positive news on the U.S. inflation front and the resulting expectation of a less restrictive monetary policy from the Fed offer support to the currency, domestic economic challenges, particularly in investment and consumption, along with global political uncertainty, pose downside risks. The upcoming economic data and international developments will be crucial in determining the peso’s direction in the coming months.”
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