• Mexican Peso strengthens against US Dollar as core PCE inflation falls below expectations, boosting prospects for Fed rate cuts.
• Ongoing political uncertainties in Mexico dampen Peso’s demand.
• Banxico cuts GDP forecasts for 2024 and 2025, indicating slower growth and potential rate cuts.

The Mexican Peso recovered some ground on Friday against the Greenback after the Federal Reserve’s (Fed) preferred inflation gauge, the core Personal Consumption Price Expenditures Price Index (PCE), was a tenth lower than expected, suggesting that the disinflation process has evolved. This gives the Fed the green light to begin cutting rates, which is a headwind for the US Dollar. At the time of writing, the USD/MXN trades at 19.64, down 1.01%.

Mexico’s economic docket was absent during the week. However, political uncertainty linked to the judiciary reform and the dissolution of autonomous bodies in bills pushed by President Andres Manuel Lopez Obrador might keep investors nervous as the new Mexican Congress takes office.

Aside from this, the Bank of Mexico (Banxico) is downwardly reviewing economic growth as it estimates the Gross Domestic Product (GDP) for 2024 to drop from 2.4% to 1.5% and from 1.5% to 1.2% for 2025 after revealing its Q2 2024 quarterly revision.

Banxico Governor Victoria Rodriguez Ceja warned that adjustments to the primary reference rates would be gradual only when macroeconomic conditions allowed them.