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Mexican Peso Advances on Unsteady Ground

February 20, 2025 (Investorideas.com Newswire) Investorideas.com, Mexican Peso Advances on Unsteady Ground.

"The Mexican peso posted a positive performance on Thursday against the U.S. dollar, reflecting a combination of both domestic and external factors.

On the domestic front, the recent wage increases, which reached 6.4% year-over-year, stand out as a factor that could strengthen purchasing power and support medium-term consumption. However, the broader economic outlook remains fragile, as evidenced by the expected GDP contraction in Q4 and an annual growth rate of just 1.5%, well below the 3% seen in previous years.

Regarding commercial activity, retail sales recorded a slight 0.1% monthly increase in December, surpassing expectations of a 0.4% decline. Nevertheless, the year-over-year variation shows a 0.2% decline, confirming a scenario of stagnant consumption. This mixed performance is reflected in sector-specific data: while food, beverages, and tobacco grew by 9.3%, categories such as stationery, recreational products, and hardware saw significant declines.

On the monetary policy side, Banco de Mexico has taken note of the economic slowdown and progress in inflation reduction, leading to a decision in its first 2025 meeting to implement a larger-than-expected interest rate cut. While this move aims to stimulate domestic growth, it could put some pressure on the currency in the medium term.

However, the peso has found relief in external factors, such as the unexpected rise in initial jobless claims in the U.S., which has slightly supported expectations of a less aggressive stance from the Federal Reserve.

That said, we cannot overlook the risks stemming from global volatility and trade disputes, factors that influence investor sentiment, especially as Mexico continues to exhibit structural vulnerabilities.

In this context, the recent strength of the peso should be assessed with caution.

The combination of rising wages, moderate consumption, and an uncertain international environment should encourage caution among market participants. Despite the recent boost to the currency, the path to sustained growth depends on the stability of macroeconomic policies and the evolution of global conditions, which will be key determinants in the future performance of the Mexican peso."

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