• The Mexican Peso rises in its key pairs after USD and GBP are pressured by weak inflation prints. 
• GBP/EUR might see volatility when Eurozone GDP data is released on Wednesday. 
• Banxico will probably cut interest rates gradually, according to Capital Economics.  

The Mexican Peso (MXN) is trading between a third and half of a percent higher in its key trading pairs on Wednesday, as firmer risk appetite supports emerging market FX. 

Investor spirits lifted after lower US factory-gate inflation led to a rally in US stocks on Tuesday. Across the pond in the UK, inflation data on Wednesday morning reveals that prices grew less than expected. This is weighing on the Pound Sterling (GBP), with GBP/MXN down 0.50% at the time of publication. 

The Mexican Peso trades higher in its most traded pairs on Wednesday, supported by an overall risk-on mood in financial markets. Tuesday’s US Producer Price Index (PPI) data showed factory-gate prices easing overall, solidifying expectations of the Federal Reserve (Fed) entering a new era of rate-cutting in September. With US borrowing costs expected to fall, US stock indices rallied, helping risk-sensitive emerging market FX like the Peso.

The Mexican Peso is performing particularly well against the Pound on Wednesday as GBP weakens following the release of mostly lower-than-expected UK inflation data. The data increases the probability of the Bank of England (BoE) cutting interest rates, which is negative for GBP since that will likely lower foreign capital inflows. The UK Consumer Price Index (CPI) fell 0.2% in July on month after gaining 0.1% in June. It came out at 2.2% year-over-year, undershooting expectations of 2.3% but higher than the 2.0% registered in June. 

UK PPI was mixed, and the Retail Price Index was lower month-over-month (0.1% versus 0.2% previously) but higher YoY at 3.6% versus the 2.9% previously. 

Next on Wednesday’s calendar is the Eurozone preliminary Gross Domestic Product (GDP) reading for Q2 and then later, during the US session, the US CPI reading for July.  Both these may impact key Peso pairs.