- Mexican consumer confidence plummets to its lowest level since August 2024, impacting the performance of the Peso.
- Banxico remains dovish with possible rate cuts on the horizon following recent drops in inflation.
- The US Dollar finds support in rising Treasury yields, with the 10-year yield rising to 4.24%.
The Mexican peso erased its earlier gains and fell to a four-day low before regaining some ground against the dollar on Tuesday after consumer confidence figures in Mexico deteriorated, while Treasury yields US rose. USD/MXN is trading at 20.23, virtually unchanged.
Mexico’s National Statistics Agency revealed that consumer confidence reached its lowest level since August 2024, with nine of the ten subcomponents declining, according to the national survey.
The latest inflation report on Monday keeps traders optimistic that the Bank of Mexico (Banxico) will reduce interest rates at its December 19 meeting. The Consumer Price Index for November decreased in general and underlying figures, opening the door to expansionary policies by the central bank.
The governor of Banxico, Victoria Rodríguez Ceja, remained moderate. In his latest interview with Reuters, he said that given the progress of disinflation, the central bank could continue to reduce borrowing costs.
In November, the US National Federation of Independent Business reported an increase in small business optimism.
Previously, USD/MXN rose, supported by the jump in US Treasury yields. The US 10-year Treasury yield rose three basis points to 4.24%, a tailwind for the Dollar.
The US Dollar Index (DXY), which tracks the performance of the dollar against a basket of six currencies, rose 0.40% to 106.59.
This week, Mexico’s economic agenda will include Industrial Production data. In the US, the Consumer Price Index (CPI), Producer Price Index and Initial Jobless Claims data will also attract traders.
Daily Market Summary: Mexican Peso Consolidates Around 20.20
- Consumer confidence in Mexico in November fell from 49.5 to 47.7, below forecasts of 48.0.
- The swaps market suggests that Banxico will cut interest rates by 25 basis points at the December 19 meeting.
- Mexico’s economic agenda revealed that headline and core inflation in November missed estimates, falling after the Consumer Price Index hit its highest level of 5.57% in July.
- US small businesses were optimistic about the economy. The index stood at 101.7, beating forecasts of 95.3 and 93.7 in October.
- Money market futures price in an 88% chance that the Fed will cut borrowing costs by 25 basis points this month, according to the CME’s FedWatch tool.
- Banxico’s November survey shows that analysts estimate inflation in Mexico of 4.42% in 2024 and 3.84% in 2025. Core inflation figures will remain at 3.69% in 2024 and 2025. GDP is expected to be 1.55% and 1.23% for 2024 and 2025, respectively, and a USD/MXN exchange rate of 20.22 for the rest of the year and 20.71 in 2025.
Mexican Peso Technical Outlook: USD/MXN Holds Firm Below 20.30 on Peso Strength
USD/MXN is consolidating around the 20.10-20.30 area for the fourth consecutive day, slightly above immediate support seen at the 50-day SMA at 20.00. The Relative Strength Index (RSI) is showing a shift in momentum to the downside in the near term, which could pave the way for further declines.
In that case, if USD/MXN falls below 20.00, the next support would be the 100-day SMA at 19.61 before testing the psychological mark of 19.50, before the 19.00 figure.
Conversely, if USD/MXN rises above the December 6 high of 20.28, that could pave the way to challenge 20.50, before the yearly high of 20.82, followed by the 21.00 mark.
The Mexican Peso FAQs
The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is largely determined by the performance of the Mexican economy, the policy of the country’s central bank, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans living abroad, particularly in the United States. . Geopolitical trends can also affect the MXN: for example, the nearshoring process (or the decision by some companies to relocate manufacturing capacity and supply chains closer to their home countries) is also seen as a catalyst for the currency. Mexican, as the country is considered a key manufacturing center on the American continent. Another catalyst for the MXN is oil prices, as Mexico is a key exporter of the raw material.
The main objective of Mexico’s central bank, also known as Banxico, is to keep inflation at low and stable levels (at or near its target of 3%, the midpoint of a tolerance band between 2% and 4%. %). To do this, the bank establishes an appropriate level of interest rates. When inflation is too high, Banxico will try to control it by raising interest rates, which makes borrowing more expensive for households and businesses, thus cooling demand and the economy in general. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken the MXN.
The publication of macroeconomic data is key to evaluating the state of the economy and can have an impact on the valuation of the Mexican peso (MXN). A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for the MXN. Not only does it attract more foreign investment, but it may encourage the Bank of Mexico (Banxico) to raise interest rates, particularly if this strength is accompanied by high inflation. However, if economic data is weak, the MXN is likely to depreciate.
As an emerging market currency, the Mexican Peso (MXN) tends to rise during periods of risk, or when investors perceive overall market risks to be low and are therefore eager to engage in investments that carry higher risk. . Conversely, the MXN tends to weaken in times of market turbulence or economic uncertainty, as investors tend to sell riskier assets and flee to more stable safe havens.
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.
