Ella 
The Mexican Peso (MXN) experienced a further decline during the European trading session on Wednesday, continuing the trend from Tuesday when it fell between 1.50% and 2.00% against major currencies. This drop followed the release of retail sales data indicating a significant reduction in consumer spending for June.
The weaker-than-expected retail sales figures suggest a potential decrease in inflation, raising the likelihood of additional interest rate cuts by Banco de Mexico (Banxico). Such a move could negatively impact the Peso, as lower interest rates tend to reduce foreign capital inflows.
Speculation is increasing that investors may be withdrawing from long Peso carry trade positions. As Mexico’s interest rates decline and the Peso depreciates, while the opposite trend occurs in Japan, the attractiveness of the carry trade—which profits from the interest rate differential between currencies—may diminish, leading to further outflows from the MXN.
The Peso’s recent recovery from early August lows was reversed following the Mexican government’s announcement of new details regarding controversial judicial reforms. According to Commerzbank, these reforms, viewed by some investors as unfriendly to market stability, contributed to the Peso’s decline after the June elections and have influenced its overall weakness in recent days.
The USD/MXN exchange rate may experience volatility on Wednesday due to the release of the US Quarterly Census of Employment and Wages (QCEW) for March. This data, used for comparison with US Nonfarm Payrolls (NFP), may lead to revisions if discrepancies are found. Although the QCEW data only extends to March 2024, any significant downward revision could heighten concerns of a US economic downturn, potentially weakening the US Dollar (USD). Additionally, the Federal Reserve is set to release minutes from its July policy meeting.
For further insights into Mexico’s economic outlook, traders will need to await Thursday’s publications of the August 1st Half-Month Inflation data and the Q2 Gross Domestic Product (GDP) figures from INEGI.
As of the latest update, one US Dollar (USD) is valued at 19.06 Mexican Pesos, the EUR/MXN pair is trading at 21.21, and the GBP/MXN pair stands at 24.82.
On Tuesday, the USD/MXN pair gained over 1.7%, reversing a previous downtrend within the pair’s broader rising channel. The long bullish candlestick observed suggests that the bearish Shooting Star pattern from the prior day did not receive confirmation, possibly signaling a shift in the short-term trend. This development could indicate the beginning of a new uptrend within the channel for USD/MXN.
