- The Mexican Peso falls while the USD/MXN rises more than 1.40%, driven by expectations of more rate cuts from Banxico.
- The slowdown in inflation in early September strengthens the case for a Banxico rate cut at its September 26 meeting.
- Bloomberg Survey: 20 of 25 analysts expect Banxico to cut 25 bps to 10.50%, with some predicting a 50 bps reduction.
The Mexican Peso is falling against the Dollar on Wednesday as the latter appreciates sharply against most emerging market currencies. There are expectations of further easing by the Bank of Mexico (Banxico) at its meeting on September 26. This environment has sponsored a rise in the exotic pair. At the time of writing, the USD/MXN is trading at 19.58, a gain of over 1.40%.
Mexico’s economic agenda remained absent on Wednesday, but data released on Monday and Tuesday paint a mixed economic picture. In annual data, Economic Activity improved in July, but Retail Sales extended their agony to three consecutive months of negative readings.
On Tuesday, the National Institute of Statistics, Geography and Informatics (INEGI) announced that the monthly and annual inflation figures for the first half of September had slowed.
The latest set of data should allow Banxico to cut its interest rate by at least 25 basis points (bps) on Thursday. According to Bloomberg, 20 out of 25 analysts estimate that the central bank will reduce borrowing costs to 10.50%. One expects rates to remain unchanged, and four estimate a 50-bps rate cut, following in the Fed’s footsteps.
If Banxico eases its policy, that would be negative for the Peso. Therefore, the USD/MXN could extend its uptrend, with traders setting their sights on the psychological figure of 20.00.
Christian Lawrence, senior cross-asset strategist at Rabobank, noted, “We see room for downside episodes based on tactical carry trade flows during periods of volatility suppression. Still, our basis is for further MXN weakness in the coming months as US reforms and elections boost MXN risk premiums.”
Meanwhile, data in the United States (US) shows that although the economy is slowing, most market participants estimate a soft landing scenario. On Tuesday, the Conference Board (CB) revealed that Consumer Confidence in September deteriorated and hit its lowest level since August 2021 at 98.7, down from 105.6.
Daily Market Roundup: Mexican Peso Falls Amid Light Economic Agenda
- USD/MXN extended its rally on Banxico rate cut expectations, along with the recovery of the Dollar.
- The US Dollar Index (DXY), which tracks the performance of the greenback against a basket of six pairs, is up 0.56% and trading at 100.91.
- Banxico is expected to cut borrowing costs by 175 bps by the end of 2025, according to swap markets.
- Market participants had fully priced in a 100% chance of a 25 bps rate cut by the Fed. However, the odds of a 50 bps easing are at 60.8%, according to the CME FedWatch tool.
USD/MXN Technical Analysis: Mexican Peso Plunge as USD/MXN Surges Above 19.50
The USD/MXN resumed its uptrend on Wednesday and reached a daily high of 19.64 before stabilizing at current levels. Momentum favors further upside as the Relative Strength Index (RSI) is bullish.
The first key resistance level that buyers need to overcome is the August 6 high at 19.61. Once overcome, the next stop is 20.00, followed by the yearly (YTD) high at 20.22.
On the other hand, if sellers sink the USD/MXN below the September 23 low at 19.29, it will expose the confluence of the 50-day simple moving average (SMA) and the September 18 low between 19.08 and 19.06.
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.
