Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

The vast majority of retail client accounts lose money when trading CFDs.

You should consider whether you can afford to take the high risk of losing your money.

Important Notice - Fraud awareness
Important Notice - Scam alert
54.76% of retail investor accounts lose money when trading CFDs / Spread betting with this provider.
Important Notice - Fraud awareness
Important Notice - Scam alert
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 54.76% of retail investor accounts lose money when trading CFDs / Spread betting with this provider. You should consider whether you understand how CFDs / Spread betting work and whether you can afford to take the high risk of losing your money.
Important Notice - Fraud awareness
Important Notice - Scam alert
The vast majority of retail investor accounts lose money when trading CFDs / Spread betting with this provider.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail investor accounts lose money when trading CFDs / Spread betting with this provider. You should consider whether you understand how CFDs / Spread betting work and whether you can afford to take the high risk of losing your money.
ATFX

FCA License No: 760555

ATFX-search-icon
Client Portal
Start trading
rch

Mexican Peso (USDMXN) rises, BdeM hikes interest rates by 75 bps

USD/MXN - The Mexican Peso had shown great strength against its base currency (US dollar) throughout the week, attaining its climax point yesterday. This follows the decision of the Bank of Mexico to hike its interest rate by 75 basis points. The increment was the country's highest interest rate hike ever since 2008, when she imbibed the practice of intermittent interest rate hikes to match other countries' currency values. This aggressive stance was taken after the Mexican inflation rate hit 7.88% last week, exceeding the BdeM target of 3%.

Consequently, the board members unanimously decided to hike its interest rate by 0.75%, bringing it to 7.75%. Furthermore, policymakers pledge readiness to extend its interest rate by as much next month if the present hike does not achieve the target of reducing inflation.

As expected, the bears have dominated the USDMXN pair throughout the week. Thus, USDMXN, which started the new week on Monday at $20.37100, is trading at $19.17100 during the Asian session today. This means the pair have lost a whopping 1200 pips this week alone.

How do fundamentals affect the Base and Counter currencies?

The base currency for USD/MXN is USD, while the counter currency is MXN.

Each currency pair is always affected by the economic news bordering on the two currency pairs.

Whenever positive news favouring the base currency (USD) circulates, it will push the pair (USDMXN) to turn bullish. This means good information for the US dollar will negatively discount the counter currency.

In cases when news is positive for the counter currency, such as the Mexican Peso (MXN), the exchange rate of the base currency, in turn, is discounted, such as the USDMXN above. This explains why the recent interest rate hike for the Mexican Peso, positive news for this currency, has led to the definite bearish trend witnessed in USDMXN throughout the week.

Forex traders must pay great attention to economic data impacting two traded currency pairs (Base and Counter currency). The rationale is that both currencies are combined to determine the trend for such currency pairs.

How does an interest rate hike impact a country's currency?

An interest rate hike is an essential central bank's monetary policy that strengthens the country's currency against its counterparts. An excessive interest rate hike makes it challenging to borrow money for companies and individuals, which could increase the unemployment rate and affect economic activities in the long term.

Last Updated: 24/06/2022

This market commentary and analysis has been prepared for ATFX by a third party for general information purposes only. Any view expressed does not constitute a personal recommendation or solicitation to buy or sell as it does not take into account your personal circumstances or objectives, and should therefore not be interpreted as financial, investment or other advice, or relied upon as such. You should therefore seek independent advice before making any investment decisions. This information has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. We aim to establish and maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps to prevent conflicts of interest from constituting or giving rise to a material risk of damage to the interests of our clients. The market data is derived from independent sources believed to be reliable, however we make no representation or warranty of its accuracy or completeness, and accept no responsibility for any consequence of its use by recipients. Reproduction of this information, in whole or in part, is not permitted.


 

Recent news

Recent news
GBPUSD turns bearish ahead of GDP report

GBPUSD started the week at $1.227, and has fully reversed its bullish trend. The bulls qui...

Recent news
Gold (XAUUSD) prices face rejection at $1807

The precious metal gold faced some rejection after reaching $1,807 on Wednesday, following...

Recent news
US dollar slides downwards amidst July CPI cool down

July's Consumer Price Index (CPI) came out lower. The US dollar dominance in the forex mar...

Recent news
Bitcoin prices jump above $24K as US inflation cools down

The crypto market witnessed a strong bounce yesterday. Bitcoin (BTCUSD) prices led the way...

Recent news
USDCAD holds above $1.2884 as market awaits for US CPI

USDCAD has sustained above its support level of $1.2884 from yesterday. The price is seen ...