The Mexican Peso reached a two-year high, with the USD/MXN currency pair falling to 16.92, marking a 0.22% decline for the week and a 0.50% drop for the week, as the US Dollar weakened despite improved business activity in the US services sector [1]. The Peso's strength was supported by a 275-basis-point interest rate differential in its favor, making it attractive for carry trades, while the US Dollar Index (DXY) ended flat at 98.84 for the day but was down over 0.80% for the week [1].
Mexican Retail Sales data showed a -0.2% month-on-month contraction in June, missing estimates for a 0.1% expansion, though this was an improvement from May's -0.6% contraction. On a year-over-year basis, sales rose from 1.6% to 2.7%, but still missed the forecasted 3.1% increase [1]. Despite the weaker retail sales, the Peso continued to appreciate, reflecting broader market sentiment and the influence of external factors such as US Dollar weakness and carry trade dynamics.
The Bank of Mexico (Banxico) released minutes indicating a cautious stance on interest rates, citing upside risks to inflation and noting that the current policy stance is appropriate. The board also highlighted that escalation of the Middle East conflict could negatively affect global economic activity [1].
Looking ahead, key data releases for the next week include Mexican inflation data for the first half of August, second quarter GDP, and the Current Account. In the US, markets are watching for Treasury Secretary Bessent's announcement on Iranian sanctions, the US PCE report, BLS preliminary benchmark revisions, and Fed Chair Warsh's speech at Jackson Hole [1]. Technical analysis shows USD/MXN trading at 16.9206, with a bearish near-term bias and the Relative Strength Index (RSI) at 27.3, indicating oversold conditions but not yet signaling a clear recovery [1].
CONCLUSION
Despite weaker-than-expected Mexican retail sales, the Peso strengthened to a two-year high against the US Dollar, driven by carry trade support and a softer Greenback. Banxico remains cautious on rates amid inflation risks, while technical indicators suggest the USD/MXN pair is in oversold territory. Market participants are now focused on upcoming economic data and geopolitical developments for further direction.