Ella 
The Mexican peso (MXN) was down about 0.5% among the most traded pairs on Monday morning as traders returned to their desks after a weekend break.
Concerns about escalating tensions in the Middle East due to bloodshed between Israel and Hezbollah are weighing on riskier assets including the Mexican peso, with continued gains in the Japanese yen (JPY) pointing to more outflows from carry trades, while the peso has been It is the main beneficiary of carry trade.
The Mexican peso briefly rebounded on Friday after Federal Reserve Chairman Jerome Powell confirmed in a speech at the Jackson Hole Banking Symposium that the Fed would cut interest rates. Powell said the apparent slowdown in the U.S. labor market was a key reason for lower borrowing costs.
“The timing and pace of rate cuts will depend on incoming data,” Powell said, adding: “Upside risks to inflation have weakened and downside risks to employment have increased.”
Powell’s comments sent the U.S. dollar (USD) pair lower as interest rate cut expectations are negative for the currency as they typically lead to lower foreign capital inflows. USD/MXN ended the day down more than 2%. EUR/MXN and GBP/MXN also fell, but to a lesser extent.
After Powell’s speech, other Fed officials expressed similar views. Chicago Federal Reserve Chairman Austan Goolsbee said in an interview with Bloomberg News that attention needs to be paid to the cooling of the job market because inflation is continuing to fall. Philadelphia Fed President Patrick Harker said the central bank needs to lower interest rates in an orderly manner and cautioned that any drastic reductions may be avoided.
Overall, the Mexican peso is in a downward trend, ending the week significantly weaker against its major peers despite some gains on Friday. A series of factors including lower-than-expected Mexican inflation data for August, weaker retail sales in July and renewed concerns about the impact of Mexico’s new government’s proposed constitutional changes were cited as dragging down the peso.
