On Monday, the Mexican Peso gained ground against the US Dollar, with the USD/MXN pair trading at 17.32, down 0.14% as risk appetite increased and traders awaited the Bank of Mexico (Banxico) monetary policy meeting scheduled for later in the week [1]. The Peso's strength was supported by Mexico's preliminary second-quarter GDP reading, which showed a 1.5% quarter-on-quarter expansion, surpassing estimates and rebounding from a -0.6% contraction in Q1 2026. Household consumption and welfare social programs were cited as principal drivers of this growth, according to Moody's Analytics [1]. Banxico's private economists' survey indicated trimmed inflation forecasts for the current year, now expected to end at 4% in 2026 (down from 4.2% in June), and raised GDP projections from 1.10% to 1.20%. The USD/MXN exchange rate is projected to remain stable at 17.88 [1]. Prime Terminal data revealed an 88% chance of Banxico holding rates at 6.50%, with only a 12% chance of a hike at the upcoming meeting [1].
Meanwhile, US economic data showed improvement in the manufacturing sector, with July's ISM Manufacturing PMI rising from 53.3 to 55.6, exceeding estimates of 54 and marking the highest pace in four years [1][2]. The employment sub-component increased for the first time since 2023, although input costs remain high [2]. This robust US data contributed to a rebound in the US Dollar, which also impacted other markets such as gold, with XAU/USD trading at $4,037, down 0.12% [2].
Geopolitical developments, particularly the US-Iran conflict, continue to influence market sentiment. Hostilities in the Middle East have paused at the request of Iran and other countries, but uncertainty remains high. US President Donald Trump stated that the US Navy blockade will stay in place until Iran signs a deal to never have a nuclear weapon and keep the Strait of Hormuz open [2]. A jump in energy prices could prompt a more hawkish Federal Reserve stance, with investors expecting 22 basis points of tightening towards the end of 2026, according to Prime Terminal data [2]. At the last Fed meeting, three members dissented, opting for a 25-basis-point rate hike, citing concerns about inflation remaining above the Fed's 2% target [2]. New York Fed President John Williams recently stated the central bank is ready to tighten policy if inflation pressures do not ease [2].
Looking ahead, both Mexico and the US have key economic releases this week. Mexico's Consumer Confidence data is due on August 4, followed by Banxico's Interest Rate Decision on August 6 [1]. In the US, jobs data including the ADP Employment Change, Job Openings and Labor Turnover Survey (JOLTS), jobless claims, and the July Nonfarm Payrolls report will be released on Friday, August 7 [1][2].
CONCLUSION
The Mexican Peso's recent strength is underpinned by robust economic data and positive growth expectations, while anticipation for Banxico's policy decision adds to market focus. Improved US manufacturing data and ongoing geopolitical uncertainty are supporting a rebound in the US Dollar, impacting related markets such as gold. Investors are closely watching upcoming economic releases and central bank actions for further direction.