The Mexican peso weakened against its US peer to finish the trading week, despite better-than-expected economic data. Is the peso unable to find support due to the government failing to contain the COVID-19 public health crisis?
In October, industrial production advanced 2%, up from 0.6% in September. Industrial output still contracted 3.3% year-over-year, led by declines in manufacturing, construction, mining, and utilities. Still, both readings are better than what the market had penciled in, suggesting that Mexico’s industrial sector could be setting the stage for a rebound in 2021.
On Friday, the central bank reported that foreign exchange reserves came in at $199 billion in October, down from $200 billion in the previous month. Since the Federal Reserve initiated its dollar-swap program with its central bank counterparts in April, Mexico’s forex reserves have remained above $195 billion.
Earlier this week, the government reported that the consumer price index (CPI) edged up just 0.08% in November, half of what the market had forecast. On an annualized basis, the inflation rate surged 3.33% last month, down from 4.09% in October.
The core inflation rate, which strips volatile food energy, contracted 0.08%, lower than the -0.05% analysts had anticipated.
Next week, the central bank will hold its December policy meeting. It is widely expected that policymakers will slash interest rates by 25 basis points to 4% to support the economic recovery.
Last month, officials had warned about ballooning inflation, but reassured financial markets and citizens that the central bank would not be tapering its support program.
Meanwhile, the coronavirus pandemic continues to hurt Mexico, with the second wave in full effect. So far this month, daily infections of COVID-19 have climbed as much as 22,000. In total, Mexico has reported 1.22 million cases, with a death toll of 112,000.
The USD/MXN currency pair advanced 0.64% to 20.1303, from an opening of 20.0092, at 20:05 GMT on Friday. The EUR/MXN jumped 0.42% to 24.3867, from an opening of 24.2845.