Mexican Peso skyrockets as Fed keeps rates unchanged, traders eye possible early 2024 rate cut

Mexican Peso skyrockets as Fed keeps rates unchanged, traders eye possible early 2024 rate cut

  • Mexican Peso rallies sharply against the US Dollar, with USD/MXN plunging more than 1.50% to 17.76.
  • Federal Reserve’s unanimous decision to keep rates steady highlights commitment to 2% inflation target.
  • Traders bet on end of Fed rate hikes, with first-rate cuts anticipated in June 2024, odds at 68.02%.

Mexican Peso (MXN) rallied sharply against the US Dollar (USD) on Wednesday as market sentiment shifted positively due to the Federal Reserve’s (Fed) decision to hold rates unchanged, though despite leaving the door open for further tightening, traders already priced in the Fed’s ended its tightening cycle. The USD/MXN is plunging more than 1.50%, trading at 17.76, well below the psychological 18.00 figure.

The Federal Reserve’s decision to keep rates steady was unanimous. In its monetary policy statement, Fed policymakers acknowledged steady economic expansion in the third quarter and mentioned a moderation in job gains. However, they also highlighted that inflation remains too high and emphasized their commitment to returning inflation to its 2% target.

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According to Reuters, US short-term interest rate futures are added to earlier gains as traders bet Fed rate hikes have ended. Additionally, the first-rate cuts are eyed at June 2024.

In the meantime, Fed Chair Jerome Powell’s press conference failed to reassure investors that further tightening is needed, though having him saying “We have come very far with this rate-hike cycle and are close to end of the cycle,” sponsored another leg-down on the USD/MXN, as market participants are not expecting another rate hike. According to the CME FedWatch Tool, traders expect the first rate cut by June 2024, with odds at 68.02%.

Earlier, the US economic docket revealed the ADP Employment Change report for October, which showed the economy adding 113K private jobs, above September’s 89K but missing estimates of 150K. Other data witnessed manufacturing activity weakening, as the Institute of Supply Management (ISM) announced that October’s Manufacturing PMI dropped below the 50 contraction/expansion midline, at 46.7 for the previous twelve months in a row, below the consensus and September’s 49.0 reading.

Additional data from the US Department of Labor revealed that job openings in September rose by 9.553 million, above estimates of 9.25 million and August’s 9.497 million vacancies reported a month ago.

Aside from this, S&P Global revealed October’s Manufacturing PMI, which showed an improvement from 49.8 to 52.1, but the main headlines are around Acapulco’s tragedy after Hurricane Otis. Mexican President Lopez announced a recovery plan, including tax breaks, financial assistance and social welfare payments. The Mexican Finance Minister said that 61 billion pesos in investment would be required for Acapulco.

 

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