- The Mexican Peso appreciates 0.50% against the Dollar after a week of mixed data from the US, which reinforces the chances of a Fed rate cut.
- Light economic agenda sees US import prices rise slightly while export prices decline in November.
- The upcoming decisions from the Fed and Banxico next week could further influence the USD/MXN.
The Mexican Peso recovered after registering losses on Thursday and appreciated around 0.50% against the Dollar during the North American session. Mixed US economic data released during the week increased bets that the Federal Reserve (Fed) will cut interest rates next week. USD/MXN is trading at 20.11, down after reaching a high of 20.26.
The economic agenda in Mexico and the US is light on Friday. US import and export prices stood out, with the former recording a minimal increase while the latter fell in November.
During the week, economic data from Mexico revealed that inflation fell below estimates in headline and core prices in November. This cemented the case for another rate cut by the Bank of Mexico (Banxico), which will hold its last meeting on December 19.
Additional data showed that consumer confidence in November deteriorated, falling from 49.5 to 47.7. Industrial production for the same period, reported on December 12, highlighted the ongoing economic slowdown, printing negative figures in the monthly and annual data.
Despite this, the USD/MXN extended its losses, although the US Dollar Index (DXY), which tracks the performance of the Dollar against six currencies, posted daily gains for six consecutive days and is holding on to 107.00.
The Peso has been pressured by the tough rhetoric of US President-elect Donald Trump, who threatened to impose 25% tariffs on Mexican imports if the government does not help with illegal immigration and fight drug cartels. .
However, the USD/MXN continued to fall, favoring the Mexican currency, as the interest rate differential remained.
Next week, the Fed and Banxico are expected to reduce borrowing costs. Barring any surprises, the USD/MXN could extend its downtrend towards 20.00 before the end of the year.
Daily Market Summary: Mexican Peso Boosted by Fed Rate Cut Speculation
- US import prices in November rose 0.1% month-on-month, matching the October reading and beating expectations for a -0.2% decline.
- Export prices for November were flat at 0% mom, down from 1% in October but beating forecasts for a -0.2% drop.
- Banxico is expected to reduce its primary reference rate from 10.25% to 10.00% (25 basis points) at the December 19 meeting, according to the swap market.
- The governor of Banxico, Victoria Rodríguez Ceja, maintains a moderate tone. In his latest interview with Reuters, he said that given the progress of disinflation, the central bank could continue to reduce borrowing costs.
- JPMorgan analysts hinted that Banxico could cut rates by 50 basis points as inflation data shows prices are falling faster than expected.
- Traders’ focus shifted to the Fed’s Dec. 17-18 policy meeting, with traders predicting a 93% probability of a 25bp rate cut based on data from the Chicago Board of Trade.
- After the decision, investors will be watching Fed Chair Jerome Powell’s press conference for clues about the policy path to 2025.
USD/MXN Technical Outlook: Mexican Peso Recovers as USD/MXN Falls Towards 20.10
USD/MXN would end the week consolidated around the 20.00-20.25 area for five consecutive days, failing to break above or below the range, with buyers and sellers finding acceptance within that area.
However, the momentum shifted slightly to the downside, as shown by the Relative Strength Index (RSI). USD/MXN is tilted lower in the short term.
The first support for USD/MXN would be the 50-day SMA at 20.07, which has been almost flat since December 6. If the pair falls below, it could test 20.00, with further declines seen towards the 100-day SMA at 19.70.
To the upside, if USD/MXN rises above 20.25, the immediate resistance would be 20.50. A break of the latter will expose the December 2 daily high of 20.59, followed by 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.
