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The Mexican peso loses a step against the USD due to the escalation of inflation in Mexico

  • The Mexican peso reverses course and registers losses while the USD/MXN approaches the 100-day simple moving average (SMA).
  • Mexico’s inflation spiked in November, which could prevent Banxico from relaxing its monetary policy as soon as it had planned.
  • US labor market data released during the week continued to cool; USD/MXN traders are keeping an eye on US Non-Farm Payrolls.

The Mexican Peso (MXN) registers a slight fall against the US Dollar (USD) during the first operations of Thursday’s session in New York. Economic data from Mexico suggests that the Bank of Mexico (Banxico) would likely have to keep interest rates higher, not just for “some time,” as the central bank stated in its latest monetary policy statement, which could keep with USD/MXN trading below 18.00. At the time of writing, the pair is trading at 17.32 and gaining 0.30%.

Mexico’s National Statistics Institute (INEGI) revealed that inflation rose in November, although underlying figures fell. USD/MXN has been supported by the rise in US Treasury yields. However, the Dollar remains weak, as evidenced by the Dollar Index (DXY), which fell 0.33% on the day to 103.81.

Daily Market Summary: Mexican Peso Falls Despite Rising Inflation in Mexico

  • Mexico’s Consumer Price Index (CPI) rose 4.32% year-on-year in November, exceeding the 4.26% in September, although still below the forecast of 4.40%. Core CPI, typically sought by central banks as a more stable measure of price stability, slowed from 5.5% to 5.30% in the twelve months to November, below forecasts of 5.34%.
  • In recent interviews, the Governor of Banxico, Victoria Rodríguez Ceja, and the Deputy Governor, Jonathan Heath, commented that they could relax the policy if the disinflation process advances. On the contrary, Deputy Governor Irene Espinosa backtracked and stated that inflationary risks persist and are increasing.
  • In the United States, the labor market continues to cool due to recently published data. Challenger job cuts figures showed that US employers cut 45,510 jobs, up from 36,836 in October.
  • Along the same lines, initial jobless claims for the week ending December 2 stood at 220,000, below estimates of 222,000, but above the previous week’s 219,000.
  • Jobless claims, coupled with the latest JOLT and ADP figures, and softer inflation readings, led financial markets to conclude that the Federal Reserve (Fed) has ended its tightening cycle. Market participants had therefore already started pricing in more than 100 basis points of cuts by 2024.
  • Money market futures expect the US Federal Reserve to cut rates by 135 basis points by December 2024.

Technical Analysis: Mexican Peso weakens against US Dollar, while USD/MXN struggles around 100-day SMA, key resistance level

USD/MXN rises and meanders around the 100-day SMA at 17.38, which, once surpassed, could open the door to a move towards the psychological figure of 17.50. If buyers recover this last level, the 200-day SMA at 17.55 will be exposed, followed by the 50-day SMA at 17.67.

On the contrary, if USD/MXN remains below the 100-day SMA, the downtrend would remain intact, with the first support level at the current weekly low of 17.16. Once surpassed, the next demand zone would be the 17.00/05 range.

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, since Mexico is a key exporter of this raw material.

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 broader market risks to be low and are therefore willing to commit to investments that carry a higher 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

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