Anna 
The Mexican peso (MXN) saw a rise against major currency pairs on Monday, buoyed by robust investor risk appetite and favorable market conditions for commodity-linked currencies.
During the Asian trading session, global stock markets posted gains, with notable increases seen in the Shanghai Composite, Nikkei, and Australia’s ASX200. Optimism surrounding the resumption of free trade talks between China, Japan, and South Korea, coupled with advancements in technology stocks, bolstered market sentiment and supported risk-on trading.
At the time of reporting, USD/MXN was trading at 16.68, EUR/MXN at 18.09, and GBP/MXN at 21.25.
Despite ongoing investigations into Citibanamex, Mexico’s second-largest bank, the Mexican peso has demonstrated resilience, defying expectations of potential interest rate cuts by the Bank of Mexico (Banxico) in the coming months. A recent survey conducted by Citibanamex economists suggested anticipation of a rate cut from 11.00% to 10.75% at Banxico’s June 27 meeting. Lowering interest rates typically diminishes a currency’s attractiveness to foreign capital inflows.
The decision by Banxico to maintain interest rates unchanged at its May meeting was followed by diverse opinions among policymakers, complicating forecasts regarding future rate adjustments. Persistent services inflation has emerged as a significant consideration influencing Banxico’s reluctance to pursue further rate cuts.
In contrast, the Federal Reserve is anticipated to delay its initial interest rate cut amidst robust U.S. economic indicators. Strong preliminary purchasing managers’ index (PMI) data for May, particularly in the services sector, has surpassed expectations, indicating inflationary pressures. Consequently, the likelihood of a Fed interest rate cut in September stands at 49.4%, as per the CME FedWatch tool.
In Europe, the European Central Bank (ECB) is poised to implement interest rate cuts in June, albeit with a data-dependent approach thereafter. Meanwhile, speculation regarding a potential interest rate cut by the Bank of England (BOE) remains high following the UK’s inflation data showing a decrease to 2.3%. Although UK retail sales were weak in April, improved consumer confidence suggests a nuanced outlook for BOE policy decisions as inflation trends closer to the target rate of 2.0%.
