- The Mexican Peso registers slight losses against the Dollar, influenced by US inflation data and the increase in US Treasury yields.
- Banxico maintains a less restrictive stance on interest rates, with possible rate cuts hinted at next year, limiting the peso’s advance.
- Banxico deputy governor Jonathan Heath reiterated that they could cut rates next year, although the stance would remain restrictive.
He Mexican peso (MXN) records minimal losses against the US dollar (USD) in early morning trading on Wednesday, following Tuesday’s 1.51% gains, due to weak inflation data in the United States (US). Although a pro-risk impulse usually benefits risk currencies such as the Peso, a rebound in the yields of US Treasury Bonds limited the fall of the USD/MXN, it operates at 17.35, practically unchanged in the day.
In the latest monetary policy decision from the Bank of Mexico (Banxico), on November 9, the Governing Board kept rates unchanged and sounded less aggressive, saying rates need to be at the current level for “some time.” On Monday, Governor Victoria Rodríguez Ceja said there could be rate cuts next year; words echoed by Deputy Governor Jonathan Heath on Tuesday. She stated that monetary policy will remain restrictive despite the interest rate cut.
As for the data, the Mexican agenda is empty. In the United States, data showed prices paid by producers declined while retail sales contracted in October, but earlier figures were revised upward, suggesting consumer resilience despite the US’s restrictive stance. the Fed.
Daily Summary: Mexican Peso Trims Part of Tuesday’s Gains as Banxico Takes Neutral Stance
- The US Producer Price Index (PPI) rose 1.3% in the year to October, below estimates of 1.9%, and monthly deflation was 0.5%, below forecasts for an expansion of 0.1%.
- Retail sales fell 0.1% month-on-month, below the expected 0.3% contraction. Sales in the 12-month period rose 2.5%, down from September’s 4.1% increase.
- Banxico’s deputy governor, Jonathan Heath, added that the Governing Board continues to monitor real rates, which are currently around 7%.
- Heath said Banxico would not be dependent on other countries – Banxico typically reacts to decisions by the US Federal Reserve – and said they would depend on incoming data and how inflation expectations evolve.
- On Monday, Banxico Governor Victoria Rodríguez Ceja commented that the easing of inflationary prospects could pave the way to discuss possible rate cuts. She stated that the easing of monetary policy could be gradual, but would not necessarily involve continued rate cuts, adding that the board would consider macroeconomic conditions, taking a data-dependent approach.
- The latest report on inflation in Mexico, published on November 9, showed that prices grew 4.26% year-on-year in October, below forecasts of 4.28% and the previous rate of 4.45%. In monthly terms, inflation stood at 0.39%, slightly above the consensus of 0.38% and 0.44% in September.
- Mexico’s economy remains resilient after S&P Global’s October manufacturing PMI improved to 52.1 from 49.8, and gross domestic product (GDP) expanded 3.3% year-over-year in the third quarter.
- Banxico revised its inflation forecasts from 3.50% to 3.87% for 2024, which remains above the central bank’s target of 3.00% (plus or minus 1%).
Technical Analysis: Mexican peso almost sideways, with USD/MXN hovering around the 100-day SMA
The USD/MXN pair’s bias has changed to neutral to the downside in the near term, and the pair is about to break crucial support levels such as the 100-day SMA at 17.34, followed by the psychological figure from 17.00. The pair could turn lower if the 20-day SMA accelerates and breaks below a zone composed of the 50-day and 200-day SMA around 17.70-17.65. If the bearish crossover is completed, it would change the broader trend to the downside and open the door to challenging the year-to-date low of 16.62, printed in July.
On the other hand, if buyers hold the USD/MXN pair above 17.33 and reclaim 17.50 in the near term, they could remain hopeful of testing key resistance levels, such as the 200-day SMA at 17.65, before the 200-day SMA. 50 days at 17.70. Once overcome, the next resistance lies at the 20-day SMA at 17.87, before buyers can lift the price towards the 18.00 area.
Frequently Asked Questions about the Mexican Peso
What factors determine the price of the Mexican Peso?
The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is largely determined by the evolution of the Mexican economy, the policy of the country’s central bank, the volume of foreign investment in the country and even the levels of remittances sent by Mexicans living abroad, especially in the United States. Joined. Geopolitical trends can also move 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, since 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 this commodity.
How do Banxico’s decisions affect the Mexican peso?
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 in a tolerance band between 2% and 4%. %). To do this, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico tries to control it by raising interest rates, which makes borrowing more expensive for households and companies, thus cooling demand and the economy in general. Higher interest rates are generally positive for the Mexican Peso (MXN), as they translate into higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken the MXN.
How do economic data influence the value of the Mexican Peso?
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, especially if this strength is accompanied by high inflation. However, if economic data is weak, the MXN is likely to depreciate.
How does general risk sentiment affect the Mexican Peso?
As an emerging market currency, the Mexican Peso (MXN) tends to strengthen during periods of risk appetite, or when investors perceive that overall market risks are low and are therefore eager to engage in investments. that carry greater risk. On the contrary, the MXN tends to weaken in times of market turmoil or economic uncertainty, as investors tend to sell riskier assets and flee to more stable 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.
