- The Mexican Peso falls 0.08% amid US economic data showing continued growth and mixed signals from Mexico.
- Strong US GDP growth for the fourth quarter of 2023 and stable durable goods orders could impact the Fed's rate decisions, contrasting with a cooling labor market.
- In Mexico, the decline in the unemployment rate and the increase in inflation pose challenges for the direction of Banxico's monetary policy.
The Mexican Peso (MXN) regained some ground, although it remains largely unchanged, posting minuscule gains against the US Dollar (USD) on Thursday, after United States (US) economic data showed that the economy continues to grow above trend, although below the final reading of 4.9% from the third quarter of last year. Meanwhile, Mexico's unemployment rate continued its downward trend at a seasonally adjusted rate, along with a rebound in inflation in the first half of January, boosting the emerging market currency. At the time of writing, the USD/MXN pair is trading at 17.22, losing 0.02% on the day.
The US economy remains strong, growing above trend, and could avoid interest rate cuts by the Federal Reserve (Fed) amid a possible reacceleration of inflation. The Gross Domestic Product (GDP) for the last quarter of 2023 exceeded forecasts, while orders for durable goods remained unchanged and the labor market showed signs of cooling.
In Mexico, the seasonally adjusted unemployment rate for December fell compared to November, revealed the National Institute of Statistics (INEGI). On the other hand, according to BNP Paribas analysts, the latest report on inflation in Mexico could dissuade the Bank of Mexico (Banxico) from relaxing its monetary policy.
Daily summary Market Movements: The Mexican peso at a crossroads after solid US data
- US GDP for the fourth quarter of 2023 rose 3.3% quarter-on-quarter, beating estimates of 2% but less than the 4.9% increase in the third quarter, according to the US Bureau of Economic Analysis. In 2023, real GDP rose 2.5%, supported by “increases in consumer spending, nonresidential fixed investment, state and local government spending, exports, and federal government spending,” the report revealed.
- The US Department of Commerce revealed that durable goods orders were unchanged in December, at 0%, down from a 5.5% increase in November, due to a drop in transportation equipment manufacturing. .
- The U.S. Bureau of Labor Statistics reported that for the week ending Jan. 20, initial jobless claims rose to 214,000, surpassing both the previous week's numbers and the projected 200,000.
- The unemployment rate in Mexico fell from 2.7% to 2.6% in December, as analysts expected.
- In Mexico, mid-month inflation rose 0.49%, above the 0.38% forecast but below the 0.59% in December. For their part, underlying prices stood at 0.25%, coinciding with expectations, which represents a decrease compared to 0.46% in December.
- Annually, headline inflation in Mexico rose 4.9%, above forecasts and 4.46% the previous month, while core inflation cooled from 5.19% to 4.78%, as expected.
- Economic activity contracted -0.5% monthly in November, below forecasts and the -0.1% contraction in October. The annual figures fell from 4.2% to 2.3%, below growth forecasts of 3.2%.
- The Mexican economy is beginning to feel the impact of the high rates set by Banxico at 11.25%, despite the fact that most analysts estimate that the economy will grow above 2% in 2024. However, retail sales Below estimates, the economy's growth below 3% in November and the reacceleration of inflation put a stagflation scenario in play.
- Pamela DÃaz Loubet, Economist for Mexico at BNP Paribas, commented that the outlook for the Banxico Governing Board is complicated and full of risks. She added that economic activity remains strong, implying that the increase in interest rates to 11.25% has not yet affected growth and is uncertain whether it will. She estimates that Mexico's economy in 2023 will grow 3.5%, although this year it should drop to 2.5%.
- Traders cut their bets on a dovish Federal Reserve in 2024. They are at 139 basis points (bps) of cuts, down from 175 bps last week.
- Despite indications from Banxico's (Mexico's Central Bank) December meeting minutes that it may consider easing monetary policy, January's inflation report poses a potential roadblock to any easing of monetary policy.
- Standard Chartered analysts estimate that the Bank of Mexico (Banxico) will lower rates to 9.25% in 2024.
- On January 5, a Reuters poll suggested that the Mexican peso could weaken 5.4% to 18.00 per dollar in the 12 months to December.
Technical Analysis: The Mexican Peso remains firm while the USD/MXN is around 17.24
The USD/MXN pair remains virtually unchanged, although trading within known levels. If USD/MXN reclaims the 200-day SMA at 17.35, that could open the door for the pair to challenge the 100-day SMA at 17.42. If it breaks the psychological barrier of 17.50, the pair could recover to 17.99, the highs of May 23 of last year.
On the contrary, if sellers drag prices below the 50-day SMA at 17.13, the path to the downside would open. The next support is seen at 17.05, the January 22 low, followed by the psychological figure of 17.00.
USD/MXN Price Action – Daily Chart
Frequently Asked Questions about the Mexican Peso
What is MXN?
The Mexican Peso is the legal tender of Mexico. The MXN is the most traded currency in Latin America and the third most traded on the American continent. 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.
What is Banxico and how does it influence the MXN?
Banxico is the Bank of Mexico, the country's central bank. Created in 1925, it provides the national currency, the MXN, and its priority 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 banks and advises the government economically and financially. Banxico uses the tools and techniques of monetary policy to meet its objective.
How does inflation impact the MXN?
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 that affects their ability to invest and save. At a general level, inflation affects the Mexican economy because Mexico imports a significant amount of final consumption 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.
How does the Dollar influence the Mexican Peso (MXN)?
The exchange rate between the USD and the MXN affects imports and exports between the United States and Mexico, and may affect 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.
How does the Fed's monetary policy affect Mexico?
The exchange rate between the USD and the MXN affects imports and exports between the United States and Mexico, and may affect 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.
