USDMXN: SUPER PESO winner ahead of Fed rate decision

© Reuters.

By Ileana Garcia Mora

As the Federal Reserve gears up to make a decision on interest rates, the US dollar continues to soar. The surge is attributed to the expectation that the Fed will announce an upward cycle in interest rates based on better-than-expected inflation performance.

At 5:00 AM Central Mexico time on June 14, the price of the dollar was 17.19 pesos, marking an appreciation of 0.18% according to real-time data on Investing.com. In the previous session, the peso closed at 17.22, hitting a high of 17.33 and dipping to a low of 17.19 amid a general decline of the US dollar. “The next target is $17.15, which corresponds to the Fibonacci of 141.4% of the movement between May 16 and 23,” explained Janneth Quiroz Zamora, director of Currency Analysis at Grupo Monex, in a report.

The Federal Reserve is scheduled to announce its decision at 12:00 PM Central Mexico time today, amidst downward inflation and a strong labor market. Reports suggest that the decision will be to halt the upward cycle of interest rates, leaving reference interest rates at the current level of 5% to 5.25%.

Consumer inflation in the United States fell to 4.0% in May, the lowest since March 2021, slightly lower than market expectations of 4.1%. Meanwhile, core inflation, which excludes food and energy, slowed to 5.3%, the lowest since November 2021. Monthly inflation in May was 0.1%, below both April’s 0.4% and market expectations of 0.2%.

All eyes will be on the update of the Fed’s dot diagram and that of Jerome Powell for clues about the future steps of the monetary authority. Though expectations suggest that the June rate cycle will halt, there may be an increase in the July rate decision. This is mainly due to the fact that inflation remains far from the Fed’s goal of 2%, while the labor market remains strong, pressuring the prices of goods and services in the United States.

Expectations also point to a new 25 basis point increase by the European Central Bank tomorrow, while the Bank of Japan is expected to keep its interest rate unchanged when it announces its monetary policy decision on Friday.

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