USD/MXN gains upside momentum after S&P downgrades Mexico’s outlook

The Mexican peso accelerated the decline against the US dollar yesterday after S&P downgrades Mexico’s outlook from stable to negative, amid debt burden worries and disappointing growth. The Peso reached the lowest in two weeks and weakened in the market.

USD/MXN if falling marginally today after rising during the previous six trading days. Yesterday’s gains were the highest in a month. Greenback was already showing some strength in the currency market particularly against emerging market currencies but the peso dropped even further after the downgrade.

The pair rose from 18.35 back above 18.50 and today it peaked at 18.62, the highest level since August 8. From the top is pulling back and now it trades around 18.50.

Looking at the FED

Ten days ago, the central bank of Mexico (Banxico) left interest rate unchanged (as expected). The institution is expected to raise rates further if the Federal Reserve hikes. So, the speech of Janet Yellen at Jackson Hole will be important. On Thursday, Banxico will release the. “Inflation is trending higher, and so we expect the minutes to sound hawkish.  While the sluggish economy is likely to keep rates on hold for the time being, much will depend on the peso”, said analysts from Brown Brothers Harriman.