• Mexican Peso drops, weighed by risk-off mood and strong US economic data.
• Banxico Deputy Governor Omar Mejia hinted at a negative output gap by late 2024, potentially influencing future inflation.
• Traders await Mexico’s September inflation data and Banxico meeting minutes, with expectations for further rate cuts by year-end.

The Mexican Peso depreciates against the US Dollar as high US Treasury yields underpin the Greenback on Tuesday. This and news that China’s stimulus program fell short of market expectations weighed on the emerging market currency. The USD/MXN trades at 19.35, up over 0.50%.

During the Asian session, newswires revealed that Zheng Shanjie, the head of China’s National Development & Reform Commission (NDRC), failed to provide details about the shape and size of the government's fiscal stimulus. This spurred a sell-off in Chinese equities and shifted sentiment sour.

That undermined the Mexican Peso amid a scarce economic docket. Traders are eyeing the release of inflation figures on Wednesday and the Bank of Mexico’s (Banxico’s) latest policy meeting minutes on Thursday.

On Monday, Banxico’s Deputy Governor Omar Mejia said estimates suggest the economy could print a negative output gap by the end of 2024. Mejia added that it could influence prices when output drops below its full potential.

A Reuters survey showed analysts estimate the Consumer Price Index (CPI) for September in Mexico will fall to 4.62%, its lowest level since March. Meanwhile, the Core CPI for the same period is foreseen dipping to 3.96%, extending its trend for the 20th straight month.

Last week, Banxico Governor Victoria Rodriguez said that future cuts could be bigger so long as the inflation rate continues to fall.

In the last meeting, Banxico lowered rates to 10.50% in September, as is expected to lower borrowing costs by 25 basis points (bps) in the two upcoming meetings, on November 14 and December 19. Markets estimate the main reference rate to finish the year at 10% and to 8% in 2025.