The Mexican peso advances while the dollar loses ground in the market due to a possible pause in monetary tightening by the Federal Reserve

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Dollar Weakening in Market as Traders Speculate on Paused Tightening

Traders believe that inflation data will lead the central bank to pause monetary tightening, leading to a downward trend in the dollar market. As a result of the speculation, the Mexican peso has moved forward Wednesday morning and explored new seven-year lows.

Fed and Dollar Exchange Rate

Traders are betting on a pause in the rate hike cycle of the Federal Reserve (Fed), in its monetary policy announcement later this day, which has resulted in the weakening of the dollar in the exchange rate. Currently, the exchange rate spots at the level of 17.1538 units per dollar, representing an appreciation of 33.17 cents. The Dollar Index of the Intercontinental Exchange compared the US currency with six references and fell 0.49% to 102.83 units.

Inflation Data and Central Bank Hike Expectations

According to local Banco Base, “The market speculates that the Fed will suspend the cycle of interest rate hikes because inflation in the United States shows a downward trend and there are several indicators that show weakness in economic activity.” The United States recently revealed that annual inflation increased at its lowest rate in more than two years. Investors are discounting that interest rates in the United States will remain unchanged between 5% and 5.25 percent, with a 95.4% probability.

Exchange Rate and Peso Appreciation

Currently, the crossing operates in an open range between a maximum of 17.2403 units and a minimum level of 17.1429 units. The peso has significantly advanced in 2023, as it gained more than 12 percent from 19,5089 units in December. At its best so far this day, the exchange rate hit a May 2016 low, just over seven years ago.

Market and Fed Expectations

Traders are speculating on the market that the central bank will pause monetary tightening, leading to a downward trend in the dollar market. The outcome of the monetary policy announcement of the Federal Reserve later today could have a significant impact on the market.

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