Mexico: Peso Drops to Weakest Since December.

The Mexican peso weakened past 18 per US dollar to its lowest since early December as a diverging monetary policy outlook between the US and Mexico reduced the currency’s longstanding carry trade appeal. Traders reacted to the Bank of Mexico unexpectedly resuming its easing cycle with a 0.25% rate cut to 6.75% while headline inflation spiked to 4.63% in mid-March. This move was primarily driven by weakness in domestic economic activity just before the unemployment rate rose to 2.6% in February. Global sentiment further pressured the peso as the dollar strengthened after reports that the Pentagon may send 10,000 more troops to the Middle East while President Trump extended a deadline to attack Iranian energy infrastructure for 10 days. Underemployment at 7.0% and high informal employment at 54.8% alongside narrowing interest rate gaps have limited the peso’s appeal as markets now price in a 50% chance the Federal Reserve could hike rates by December.