Weakening Dollar-to-Peso Forecast Signals Pause in Fed Rate Cuts

Cooling labor market indicators have shifted market expectations significantly, with investors now pricing in a potential pause to the Federal Reserve’s easing cycle. This development directly impacts currency valuations, particularly the dollar-to-peso forecast, which analysts see tilting bearish for the local currency in the near term.

Jobs Data Sparks Dollar Strength

December employment figures released Friday painted a picture of a slowing US job market. Actual job creation reached only 50,000, falling short of the 60,000 positions economists had anticipated. The unemployment rate declined to 4.4% from November’s revised 4.5%, a counterintuitive move that highlighted the complexity of current labor dynamics.

According to CME Group’s FedWatch tool, market participants have now assigned a 95% probability that the Federal Reserve will hold rates steady at its upcoming Jan. 27-28 meeting—a dramatic shift from just 68% probability a month earlier. This dramatic repricing reflects how weaker employment data has given the Fed political cover to pause its rate-cutting campaign.

Peso Pressure Intensifies

The currency market responded swiftly to these expectations. The peso closed Friday at P59.245 per dollar, down 7.5 centavos from Thursday’s P59.17 finish. Weekly losses were more pronounced, with the unit declining 40.4 centavos compared to the Jan. 2 close of P58.841.

A local currency trader indicated that the market had been navigating narrow ranges during cautious conditions leading up to the employment data release. “The wider macro picture involves stronger dollar performance tied to elevated crude oil pricing globally,” observed market participants.

Dollar-to-Peso Forecast: Trading Ranges Ahead

Divergent outlooks from market analysts have produced distinct forecast bands for the coming week. One prominent trader expects the currency pair to oscillate between P59 and P59.40. Meanwhile, economists project a broader range from P58.90 to P59.40, reflecting uncertainty about multiple concurrent risk factors.

The dollar index itself climbed 0.25% to 99.13 and was positioned for its second consecutive week of appreciation. Against the Swiss franc, the greenback gained 0.2% to reach 0.801.

Additional Risk Factors for Currency Markets

Beyond monetary policy expectations, traders highlighted the pending US Supreme Court decision regarding tariff legality as another variable potentially affecting forex dynamics this week. Venezuela-related developments also remain on investors’ monitoring lists.

The convergence of these factors—Fed rate hold expectations, softer labor data, persistent dollar strength, and policy uncertainty—collectively support the dollar-to-peso forecast suggesting further peso weakness in the near term, though the defined trading ranges suggest volatility may remain contained within anticipated boundaries.