Peso Loses Steam Ahead of Banxico Decision Amid Rising Fed Hike Odds

The Mexican peso has lost momentum against the US dollar in recent trading sessions, with the USD/MXN pair gaining more than 1.7% over the last three sessions.

This trend continues despite markets preparing for tomorrow's Banco de México policy decision, suggesting that expectations surrounding the event have not been sufficient to support a consistent recovery in the Mexican currency.

Banco de México is expected to leave interest rates unchanged for a third consecutive meeting, as inflation has slowed significantly over the past several months and now stands at 3.26%, relatively close to Banxico's 3.00% target.

The divergence between Mexico and the US central banks' policies is becoming increasingly important, with markets assigning more than a 70% probability to another Federal Reserve rate hike at the October meeting.