Mexican Peso Soars to Two-Year High Amid Weaker Retail Sales

The Mexican Peso (MXN) has reached a two-year high despite weaker retail sales in Mexico. The USD/MXN pair slid to 16.92, with the US Dollar ending the week lower.

The Mexican currency's appreciation is driven by carry trade support, thanks to a 275-basis-point interest rate differential in favor of the Peso against the Greenback. This has resulted in a weaker US Dollar, which closed at 98.84 on Friday, down over 0.80% for the week.

Mexican retail sales fell short of estimates, contracting by 0.2% month-over-month in June, but showed improvement compared to May's -0.6% contraction. The Bank of Mexico (Banxico) remains cautious about rates, despite recognizing that inflation risks are tilted to the upside.

The next catalysts for the Mexican economy will be the release of inflation data for August, GDP for the second quarter, and the Current Account. In the US, traders will focus on Treasury Secretary's announcement of Iranian sanctions, the US PCE report, and Fed Chair comments at Jackson Hole.