- The Mexican Peso continues to weaken, posting losses for three consecutive days amid growing risk aversion.
- Fed Governor Waller supports recent 50bp rate cut, pointing to slowing inflation and suggesting further cuts if labor conditions deteriorate.
- Banxico is expected to cut rates by 25 bps next week, which could maintain an attractive interest rate spread to support the Peso.
The Mexican Peso extended its losing streak against the Dollar for the third consecutive day, with the currency set to sustain weekly losses. Risk aversion hurts the outlook for the Peso, which has failed to capitalize on the Federal Reserve’s (Fed) decision to cut rates for the first time in four years. This puts pressure on the US Dollar, but the USD/MXN remains firm and is trading at 19.38, posting gains of over 0.42%.
Wall Street changed course on Friday as traders digested decisions from three major central banks, particularly the Fed. Fed Governor Christopher Waller said on CNBC that cutting 50 basis points was the right thing to do, justifying his decision based on estimates that the Personal Consumption Expenditures (PCE) Price Index for August will be very low.
Waller added that inflation is easing faster than he thought and he is concerned about that. He said they could do more if the labor market worsens and if inflation data softens quickly.
South of the border, Mexico’s economic calendar is light, with traders looking ahead to next week’s release of Economic Activity, Retail Sales, inflation data and the Bank of Mexico’s (Banxico) monetary policy decision.
In terms of political unrest, the week has been quiet since the promulgation of the judicial reform.
Meanwhile, traders are keeping an eye on Banxico’s decision. Most analysts estimate a rate cut of at least 25 basis points, from 10.75% to 10.50%, which would slightly reduce the interest rate differential. However, it should remain attractive to investors and strengthen the Mexican currency.
Daily Market Summary: Mexican Peso Falls, Awaiting Next Week’s Data
- According to various banks and rating agencies, the impact of the judicial reform is still far from being felt. The lack of rule of law and transparency could be factors in adjusting Mexico’s creditworthiness in the long term.
- On Wednesday, the Fed cut rates by 50 bps, citing inflation progress, which is moving sustainably toward its 2% target. The US central bank’s focus shifted to the labor market.
- The Fed expects inflation to slow to 2.6% in 2024, 2.2% in 2025, and 2% in 2026, based on the core Personal Consumption Expenditures (PCE) Price Index.
- Fed officials estimate the U.S. economy will grow at a 2% pace in 2024, with the unemployment rate rising to 4.4% by the end of the year.
- The December 2024 federal funds rate futures contract suggests the Fed could cut rates by at least 53 basis points, implying that over the next two meetings, the market is expecting two remaining 25 bp rate cuts in 2024.
USD/MXN Technical Outlook: Mexican Peso Plunge as USD/MXN Rises Above 19.35
From a technical standpoint, USD/MXN has a bullish bias despite pulling back from around 20.00 towards the September 18 low of 19.06. Next week, Banxico is expected to cut rates, which could push the exchange rate out of the 19.00-19.50 range.
Momentum turned bullish as the Relative Strength Index (RSI) crossed above its neutral line, pointing higher.
If USD/MXN rises above 19.50, the next resistance would be the psychological level of 20.00. Further upside, the yearly high emerges at 20.22, followed by the 20.50 mark.
Conversely, if USD/MXN falls below the September 18 low of 19.06, the psychological figure of 19.00 will be exposed. Further losses lie below, with the buyers’ next line of defense being the 50-day simple moving average (SMA) at 18.99, followed by the last cycle low of 18.59, the daily low of August 19.
Mexican Peso FAQs
The Mexican Peso is the legal currency of Mexico. The MXN is the most traded currency in Latin America and the third most traded currency in the Americas. The Mexican Peso is the first currency in the world to use the $ sign, prior to the later use of the Dollar. The Mexican Peso or MXN is divided into 100 cents.
Banxico is the Bank of Mexico, the country’s central bank. Created in 1925, it provides the national currency, the MXN, and its primary objective is to preserve its value over time. In addition, the Bank of Mexico manages the country’s international reserves, acts as a lender of last resort to the banking sector, and provides economic and financial advice to the government. Banxico uses the tools and techniques of monetary policy to achieve its objective.
When inflation is high, the value of the Mexican Peso (MXN) tends to decrease. This implies an increase in the cost of living for Mexicans, which affects their ability to invest and save. In general, inflation affects the Mexican economy because Mexico imports a significant amount of final consumer products, such as gas, fuel, food, clothing, etc., and a large amount of production inputs. On the other hand, the higher the inflation and debt, the less attractive the country is for investors.
The exchange rate between the USD and the MXN affects imports and exports between the United States and Mexico, potentially affecting demand and trade flows. The price of the Dollar against the Mexican Peso is affected by factors such as monetary policy, interest rates, the consumer price index, economic growth and some geopolitical decisions.
The exchange rate between the USD and the MXN affects imports and exports between the United States and Mexico, potentially affecting demand and trade flows. The price of the Dollar against the Mexican Peso is affected by factors such as monetary policy, interest rates, the consumer price index, economic growth and some geopolitical decisions.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
