USD/MXN remains near weekly lows after Banxico raises rates

Mexico’s central bank rose rates by 50 basis points. USD/MXN remained relatively steady  and it was hovering around 19.41, marginally higher for the day and far from the record high levels it reached on Monday at 19.92.

The depreciation of the peso pushed expectations in favor of rate hike. The Mexican currency remains among the worst performers so far during 2016 but since Tuesday it has been recovering ground in the market, helped by the surged in crude oil prices and the expectation of the rate hike, that was confirmed today.

USD/MXN jumped to 19.61 and quickly pulled back toward 19.40/45. Earlier today it bottomed at 19.32, the lowest level since September 16. The pair is consolidating a recovery as it stabilizes in a range between 19.32 and 19.45.

Banxico moves

The Bank of Mexico increased the overnight rate a half point to 4.75%. There was no unanimous consensus about what the central bank would do. The depreciation of the peso increased the expectations of a sharp move.

The objective of today’s action according to the statement from Banxico is to keep inflation under control and inflation expectations anchored amid global market volatility.

Today’s rate hike is the third so far during 2016. Banxico rose rates in February and in June also following a decline of the Mexican peso amid global volatility across financial markets.