• Mexican Peso depreciates over 0.10% after printing solid gains.
• Mexico's economic data shows unchanged business confidence and contraction in manufacturing activity.
• Fed hints at possible rate cut in September, driving traders to the safety of the USD.

The Mexican Peso erases earlier gains and slumps against the US Dollar, extending its weekly losses after the US Federal Reserve (Fed) kept interest rates unchanged and opened the door for a possible cut at the upcoming September meeting. This underpinned the Peso, which strengthened to a high of 18.42 before erasing those gains, as the USD/MXN trades at 18.63, up 0.11%.

Risk aversion keeps Wall Street trading with losses, undermining high-beta currencies like the Mexican Peso. Traders flock to the safety of the Greenback, although US Treasury bond yields plunge following Wednesday’s Fed decision.

Mexico’s economic docket revealed that Business Confidence in July was unchanged compared to June’s data, while a measure of business activity revealed by S&P Global, showed that manufacturing activity contracted for the first time since September 2023.

In the meantime, US data provides the Fed with the tools needed to lower borrowing costs after Wednesday's decision. The Federal Open Market Committee (FOMC) stated that it wouldn’t be “appropriate to reduce the target range until it has gained greater confidence” in the disinflation process, attaining the 2% goal.

Even though that was “hawkish,” Fed Chairman Jerome Powell said that if the labor market weakens substantially, “we should respond.” This was in response to a question about a September rate cut, which he said if data evolves as of late, easing in September would be “on the table.”