• Mexican Peso rallies sharply with USD/MXN falling over 2%.
• Mexico’s economy shows mixed signals, with Q2 GDP growth at 2.1% YoY but a contraction in economic activity, as Banxico debates the appropriateness of recent rate cuts.
• Powell's speech at Jackson Hole hints at upcoming rate cuts.

The Mexican Peso rallied sharply against the Greenback on Friday after Federal Reserve (Fed) Chair Jerome Powell announced that the central bank is ready to begin its easing cycle. This undermined the US Dollar, which is tumbling to a new yearly low, according to the US Dollar Index (DXY). Therefore, the USD/MXN collapses over 2% and trades at 19.06 after retreating from a daily peak of 19.53.

The USD/MXN extended its losses on Powell’s remarks, who said, “The time has come for policy to adjust.”

He added that the Fed is data-dependent regarding the size and timing of easing and added that he’s confident that inflation will hit the Fed’s 2% goal. Regarding achieving the maximum employment task, he said that risks are skewed to the upside.

After Powell’s speech, traders priced in a 33% chance of a 50-basis-point rate cut by the Fed at the September meeting. Meanwhile, the December 2024 fed funds rate futures contract shows market players expect 100 basis points of easing in 2024.

Meanwhile, Mexico’s economic docket remained absent on Friday. Yet Thursday’s data proved that the country grew 2.1% YoY in the final Gross Domestic Product (GDP) reading for the second quarter of 2024. Regarding economic activity, used by the Instituto Nacional de Estadistica Geografia e Informatica (INEGI) as a measure of growth, the economy contracted at a -0.6 % pace, missing estimates and May’s data, each at 0.9% and 1.6%, respectively.