Mexico's July inflation slowed more than forecast, offering relief to Banxico but keeping the central bank cautious as core prices remain elevated, limiting immediate rate-cut prospects.
USD/MXN edged higher after Mexico's July inflation data came in softer than expected, trimming expectations for additional Banxico tightening. The pair moved from 17.20 to 17.35 as traders priced in reduced rate support for the peso. Banxico's cautious tone on easing limited the peso's fall.
A lower inflation reading reduces the likelihood of further Banxico rate hikes, diminishing the carry appeal of the peso. This causes USD/MXN to trade higher as interest rate differentials favor the dollar.
The 17.50 area represents near-term resistance; a break above that level could open the door to 17.80. Support sits at 17.10, the pre-data level.
Mexico's annual headline inflation eased more than expected in July, hitting X.X% versus a forecast of X.X%, according to data released Thursday. The slowdown extends a disinflation trend that could allow Banxico to hold rates at 11.00% for a third straight meeting. However, core pressures remained sticky, keeping policymakers cautious about the timing of any easing.
Mexico's headline inflation slowed more than expected in July, falling to X.X% year-on-year, down from X.X% in June and below the consensus forecast of X.X%. Core inflation remained elevated at X.X%, highlighting persistent price pressures.
Banxico is concerned that core inflation components, particularly services, remain too high for comfort. The bank wants to see sustained disinflation across all categories before reducing rates, as premature easing could reignite price pressures.