• The Mexican Peso softens on Monday after three up days in a row.
• Increasing chances of deeper cuts to interest rates and slowing growth prospects had weakened the Peso’s peers. 

USD/MXN’s daily chart paints three down days in a row, a pattern called “Three Black Crows”. 

The Mexican Peso (MXN) trades moderately against its key pairs in early trade on Monday, after a week in which the Peso rose strongly, gaining about 3.9% on average versus the US Dollar (USD), the Euro (EUR) and the Pound Sterling (GBP).  

Much higher probabilities of the US Federal Reserve (Fed) cutting interest rates by a larger-than-standard 0.50% at their meeting on Wednesday drove the appreciation in the Mexican currency against the USD last week. 

From probabilities of only around 15% midweek, after the release of the US August Consumer Price Index (CPI), the market-based probabilities of a 0.50% cut by the Fed have now risen to about 59%, according to the CME FedWatch tool. 

A larger cut to base interest rates in the US would expand the already wide interest rate differential with Mexico, where interest rates set by the Bank of Mexico (Banxico) are 10.75% versus the Fed’s 5.25%-5.50%. This encourages capital flows into the Mexican Peso because they can earn more interest. 

Generally, downbeat expectations regarding the economic outlook for the United Kingdom (UK) and the Eurozone led MXN’s gains against the EUR and the GBP. Weak GDP growth data in the UK and a downward revision to GDP forecasts by the European Central Bank (ECB) acted as catalysts.