The USD/MXN currency pair settled below recent high of 17.6780, its strongest level since April 8th, as the latest US PCE inflation and GDP data reinforced expectations of multiple Federal Reserve rate hikes this year.
According to the US Bureau of Economic Analysis, the headline US Personal Consumption Expenditures (PCE) Price Index rose 4.1% year-over-year in May, up from 3.3% previously and well above the Fed’s 2% target.
The core PCE index, the Fed’s preferred inflation gauge, increased 3.4% year-over-year in May, compared with 3.3% in the prior month and in line with expectations. This marked the highest level since October 2023. In a separate release, US Gross Domestic Product was reported to have grown at an annualized 2.1% in the first quarter, surpassing both market consensus and the previous estimate of 1.6%.
These data points have bolstered expectations that the Fed will continue to raise interest rates. Markets are currently anticipating three rate hikes this year and are assigning about a 63.4% probability to a September increase, based on the CME FedWatch Tool.
On the Mexico monetary front, Rabobank strategists Christian Lawrence and Molly Schwartz emphasized that Banco de México would likely keep policy rate unchanged through the end of the year. This stance is consistent with their expectations for both the Bank of Canada and the Federal Reserve, where they see no policy moves before year-end.
For the BoC, they reference a policy rate of 2.25%, while for the Fed, they cite an upper bound of 3.75%.
Banco de México left its benchmark rate at 6.50% at the June 25th policy meeting, matching consensus expectations.
The exotic Forex pair gained 0.98% for the week.
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