The peso closed this Wednesday with an appreciation against the US currency after the announcement of the Federal Reserve’s monetary policy, in which an interest rate increase of 75 base points was specified, to a range between 2.25 and 2.50%, a level which coincides with the maximum reached in the last rate normalization cycle that concluded at the end of 2018.
According to data from the Bank of Mexico (Banxico), the Mexican currency ended the day with a depreciation of 0.40%, standing at 20.3529 units per dollar, which marks a four-day appreciation rally.
“The Mexican peso observed a similar behavior, of shocks, on the minutes before and after the decision. The maximum of the session was located on 20.58, while at 2:00 p.m. it is trading on 20.36 units per dollar, opening a scenario of further advances or appreciation for the Mexican currency”, OctaFX analysts indicated.
In the Federal Reserve statement, he noted that Fed officials acknowledged that the labor market is robust. However, they mentioned that output and spending have suffered from higher rates, which was perceived as a slightly dovish stance (referring to an expansionary monetary policy), judging by the reaction of the markets.
As for inflation, the central bank said it remains elevated and had widened further, while blaming the war between Russia and Ukraine for creating additional upward price pressures. In reaction to this, the Federal Reserve raised rates, anticipating that “continued increases in the target range will be appropriate.” In addition, the Fed reiterated that it is “firmly committed to returning inflation to its 2% target.”
“We have the perspective with the next increase in Banxico’s interest rates we can return to the levels of 19.80 or perhaps to lower levels. Obviously we have to be aware of the employment data in Mexico, retail sales and inflation,” said Eduardo Ramos, market analyst in Latin America for ATFX.
The dollar index weakens
The dollar index (DXY) fell after the confirmation of the rise of 75 basis points and the conference of the president of the Fed, Jerome Powell. The DXY stood at 106.45 points, which means a drop of 0.55% compared to Tuesday’s close.
For intraday trading, the dollar on Wednesday fell off its 20-year high since hours before the end of the US Federal Reserve’s monetary policy meeting.
“After seeing the Fed’s monetary policy announcement, we can see how the dollar has lost value and is no longer a refuge asset for the time being,” Ramos added.
Meanwhile, the euro was up 0.89% at $1.0205. The currency recovered part of the previous session’s decline, which was the currency’s biggest daily percentage drop in two weeks on fears of a European recession, after Russia again curbed gas supplies to Europe through the Nord pipeline. stream 1