Mexican Peso Declines as Inflation Data Disappoints Investors

The Mexican peso dropped against the US dollar on Monday to begin the week on a negative note. The peso weakened following a data release that revealed weaker inflation than expected in the southern neighbor of the United States.

Mexico’s National Institute of Statistics and Geography stated in a report, which was published earlier today, that the consumer price index rose 0.31% between August and September. The reading was lower than analyst estimates, which had pointed to a 0.44% increase last month following a 0.49% gain in the month before.

The smaller gain weighed on the inflation rate on a yearly basis. The statistical agency said that over the year leading to September, the consumer price index rose 6.35%, despite expectations of an increase to 6.48%. The yearly inflation rate was at 6.66% in August.

The data reflected the negative effect that geopolitical instability had on the Mexican economy. Comments made by US President Donald Trump during his election campaign and after he took office have raised investors’ uncertainty about the North American Free Trade Agreement.

Trump repeatedly promised to change the terms of the agreement to the benefit of the United States, regardless of the effect that may have on Mexico. Officials from Mexico, the United States, and Canada will hold a meeting in Washington on Wednesday to begin the fourth round of talks on renegotiation the trade agreement.

Growing tensions surrounding the US president’s proposed wall with the southern neighbor also fed the geopolitical troubles between the two nations. A series of earthquakes in recent weeks added to the overall lackluster mood in Mexico. Meanwhile, the US dollar benefited from rising governmental bond yields and expectations of a third interest hike from the Federal Reserve before the end of the year.

Investors now await August report for Mexican industrial production, which is due to be released on Thursday. In the United States, inflation and retail sales data are due on Friday, while the Federal Open Market Committee will release its latest minutes on Wednesday.

USD/MXN traded at 18.6672 as of 19:00 GMT on Monday after touching 18.6695 at 15:10, the pair’s highest level since June 5. USD/MXN began trading this week at 18.5229.

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