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Mexican Peso: USDMXN Rises on Bank of Mexico Rate Cut

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Mexico Rate Decision, USD/MXN, COVID-19 – Talking Points:

  • Bank of Mexico cuts overnight rate by simply 50 basis points, because expected
  • USDMXN shifts higher because rate cut cycle continues
  • COVID-19 worries continue to drive plan decisions

The Bank of Mexico continued its price cut cycle amid often the COVID-19 pandemic, which has encouraged enormous monetary and fiscal replies around the globe. The Mexican middle bank cut its right away rate to 5.00% via 5.50%, as expected. USD/MXN price action drove better as news crossed often the wires. In line with other banks, the Bank of Mexico cited virus-induced worries in easing the bank’s monetary policy stance.

USDMXN (1-Min Chart)

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Source: IG Charts

Inflation risks were cited as over all uncertain in the monetary policy statement, including to the downside, “a greater than expected impact of the widening of the negative output gap” also to the upside, “additional episodes of foreign exchange depreciation.” Annual headline inflation was noted rising to 3.17% from 2.15% from April to the start of June. Despite today’s rate cut, Mexico’s interest rate remains higher than most of its emerging market peers.

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The Bank of Mexico’s statement also cited downgraded economic growth forecasts from multilateral organizations, one likely being the recently downgraded IMF forecast. Inspite of the upside improvements seen as some economies reopen, the consensus conveyed by the bank’s statement is one of uncertainty and the vote to lower the overnight price by 50 basis items was unanimous. Some predicted a hint towards ending the existing rate cut cycle, nevertheless language in the policy record appears to leave the door wide open for future cuts.

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