- The Mexican Peso plummets more than 2.30% this week.
- Mexico’s creditworthiness remains strong as Fitch reaffirms Mexico’s BBB rating but warns on judicial reform.
- Trump’s comments on immigration and auto industry relocation impact Mexican Peso sentiment.
He Mexican peso The USD/MXN continued its agony against the US Dollar, falling by around 0.49% during the North American session, affected by the deterioration of market sentiment as investors seek refuge in safe currencies. The official nomination of former President Donald Trump as the Republican candidate and comments related to Mexico could be one of the reasons behind the advance of the USD/MXN, which was trading at 18.05, up from its opening price by 0.49%.
Sentiment remains negative, as shown by global indices trading at a loss. Mexico’s economic agenda will gain momentum next Monday, July 22, with the publication of Economic Activity for May along with retail sales for the same period. This, in turn, has left market participants adrift on the dynamics of the US Dollar.
Across the border, Trump’s comments put Mexico in the spotlight, saying he will end illegal immigration by “closing the border and completing the wall.” He added, “China and Mexico have taken 68 percent of our auto industry, but we will get it back.”
The comments threaten to prevent companies from relocating to Mexico, which could weaken the Mexican peso.
Meanwhile, Fitch Ratings reaffirmed Mexico’s BBB- rating with a stable outlook, though it added that the proposed judicial reform would impact the country. The credit rating agency said there is uncertainty in the next administration to reduce the fiscal deficit, expects a mild economic recession in 2025 and added that trade tensions with the US could leave Mexico vulnerable.
The US economic calendar will feature statements from New York Fed President John Williams and Atlanta Fed President Raphael Bostic.
The US Dollar Index (DXY), which tracks the value of the greenback against six other currencies, rose back above 104.30, gaining 0.12%.
Daily movements and market drivers: Mexican peso affected by risk aversion
- Mexico’s economic activity in May is expected to contract by -0.6% m/m and grow by 5.4% y/y. Retail sales are expected to remain positive by 0.5% m/m and 3.2% y/y.
- The International Monetary Fund (IMF) has adjusted Mexico’s GDP expectations for 2024 from 2.4% to 2.2% due to the country’s economic slowdown and the US economic recession.
- Bloomberg’s interview with Donald Trump spooked investors as the former US president said he favors tax cuts, lower interest rates and tariffs, including a 60% to 100% increase on goods from China and a 10% general rate on other countries.
- CME FedWatch tools show the odds of a quarter-point cut in the federal funds rate in September are 98%.
- Consumer inflation figures for June came in lower than expected in the United States, raising the odds that the Federal Reserve will cut borrowing costs in 2024 by at least 50 basis points, according to the December 2024 federal funds rate futures contract.
Technical Analysis: Mexican Peso Stumbles as USD/MXN Hovers Around 18.00 Level
The USD/MXN has bounced off the bottom formed around 17.58-17.60 amid traders’ jitters over former President Donald Trump’s “upcoming” victory as they dump the Mexican currency. Since Thursday, the pair has gained 1.50% and challenged the psychological figure of 18.00 but failed to close above the latter.
If USD/MXN extends its gains above the psychological figure of 18.00, that will expose key resistance levels. Once overcome, the next stop would be the July 5 high at 18.19, followed by the June 28 high at 18.59, allowing buyers to target the yearly high at 18.99.
On further weakness, if USD/MXN breaks above the 50-day SMA at 17.63, that would pave the way for a challenge of the Dec. 5 high at 17.56, followed by the 200-day SMA at 17.27. Further losses would open the door for a test of the 100-day SMA at 17.21.
Banxico
The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican Peso (MXN), and to set monetary policy. To do so, its primary goal is to maintain low and stable inflation within target levels (at or near its 3% target, the midpoint of a tolerance band of between 2% and 4%).
Banxico’s main tool for guiding monetary policy is setting interest rates. When inflation is above the target, the bank will try to control it by raising rates, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the Mexican Peso (MXN), as they generate higher returns, making the country a more attractive place for investors. Conversely, lower interest rates tend to weaken the MXN. The rate differential with the Dollar, or how Banxico is expected to set interest rates compared to the US Federal Reserve (Fed), is a key factor.
Banxico meets eight times a year and its monetary policy is heavily influenced by decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee usually meets a week after the Federal Reserve. By doing so, Banxico reacts to and sometimes anticipates the monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico did so first in an attempt to decrease the chances of a substantial depreciation of the Mexican Peso (MXN) and avoid capital outflows that could destabilize the country.
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.
