The Mexican Peso (MXN) demonstrated resilience, recovering some of its value after experiencing a notable depreciation of over 2% in Monday's trading session. This decline was triggered by trade threats from United States President Donald Trump directed at Colombia. As of now, the USD/MXN is retracing, following a five-day peak of 20.77, as investors focus on the year-to-date high of 20.90. The Mexican Peso remains the most traded currency among Latin American peers, driven by Mexico's central bank's efforts to maintain low and stable inflation levels.
Banxico, Mexico's central bank, is steadfast in its objective to keep inflation close to its target of 3%, within a tolerance range of 2% to 4%. This commitment underpins the stability of the Mexican Peso, making it an attractive option for investors. The currency's performance is closely linked to interest rates; higher rates boost the Peso by offering higher yields, while lower rates can weaken it. Currently, the USD/MXN stands at 20.54, marking a decline of 0.49%.
Looking ahead, analysts project the USD/MXN exchange rate to settle around 20.95 by the end of 2025. A robust Mexican economy, characterized by high growth, low unemployment, and strong consumer confidence, bodes well for the Peso. However, Mexico's economic docket remains sparse on Tuesday, contrasting with a busier schedule in the United States.
In the US, consumer confidence has shown a decline. The Conference Board reported a dip in consumer confidence to 104.1, falling short of the anticipated 105.6. Notably, all five components of the index deteriorated, indicating a broader sentiment shift among consumers.
Banxico is anticipated to adjust its monetary policy by reducing interest rates by 25 basis points from 10.00% to 9.75%. However, some analysts speculate on a more substantial cut of 50 basis points at the upcoming February 6 meeting. These potential rate cuts are pivotal as they could influence the Peso's trajectory.
Inflation projections reveal expectations for the Consumer Price Index (CPI) at 3.91%, with core CPI forecasted at 3.68%. On an annual scale, GDP growth is predicted to decrease from 1.6% to 1.2%, reflecting economic challenges.