untitled design

The Mexican peso plummets due to the Fed’s hawkish comments

  • The Mexican Peso depreciates strongly with the USD/MXN trading above 18.00 again, gaining more than 1%.
  • Fed Governor Michelle Bowman’s comments on keeping policy rates stable and her willingness to raise rates put pressure on the Peso.
  • Banxico’s next monetary policy decision on Thursday, with most economists expecting rates to remain unchanged at 11.00%.

He Mexican peso depreciated sharply against the US dollar, as Federal Reserve (Fed) Governor Michelle Bowman took a hawkish stance compared to San Francisco Fed President Mary Daly, who was concerned about the labor market, underlining that the risks of the dual mandate are balanced. However, the USD/MXN is trading at 18.15, gaining more than 1%.

The Peso came under pressure after Bowman emphasized that the policy rate would remain stable “for some time,” adding that there has been “modest further progress in US inflation.” and that it is willing to raise rates if inflation stagnates.

San Francisco Fed President Mary Daly stressed that the Fed must “act carefully” as it seeks to finish the job of reducing inflation, adding that “it is not the only risk we face.”

Mexico’s economic agenda presented inflation data for the first half of June on Monday, ahead of the Bank of Mexico’s (Banxico) monetary policy decision on Thursday. The Citibanamex survey showed that most economists expect rates to remain unchanged at 11.00%, although they expect the central bank to cut rates through August.

Daily market summary: The Mexican peso plummets despite the high inflation that justifies the maintenance of Banxico rates

  • Consumer prices for the first half of June in Mexico rose above estimates, which will likely deter Banxico from easing policy on June 27.
  • Headline inflation jumped from the expected 4.70% to 4.78% year-on-year, although core prices fell from 4.31% to 4.17% year-on-year.
  • The Citibanamex survey showed economists ruled out further rate cuts by the central bank, estimating rates will drop to 10.25% in 2024, down from 10.00%. Regarding the USD/MXN, the consensus estimates that the exchange rate will end the year at 18.70, compared to 18.00 in the previous report.
  • Regarding economic growth, the consensus revised the Gross Domestic Product (GDP) downwards for 2024 from 2.2% to 2.1% year-on-year.
  • Banxico’s verbal intervention last week supported the Mexican Peso as USD/MXN hit an 11-day low. However, the Fed’s hawkish comments weighed on the emerging market currency.
  • The CME’s FedWatch tool shows odds of a 25 basis point Fed rate cut at 59.5%, up from 61.1% last Monday.

Technical Analysis: Mexican Peso Falls as USD/MXN Rises Again Above 18.00

The USD/MXN uptrend remains intact after yesterday’s pullback below 17.90, which sounded the alarm that sellers were back in control. However, the momentum remains in favor of the buyers, who moved, recovered 18.00 and aimed for the yearly high.

If USD/MXN breaks above 18.50, the next resistance would be the yearly high of 18.99. A break of the latter will expose the March 20, 2023 high of 19.23, followed by a rally to 19.50.

On the other hand, if USD/MXN falls below 18.00, the next key support level would be the 50-day SMA at 17.37 before testing the 200-day SMA at 17.23. Once those two levels are broken, the next stop would be the 100-day SMA at 17.06.

The Mexican Peso

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.

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.

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.

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.

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

You may also like

Get the latest

Stay Informed: Get the Latest Updates and Insights

 

Most popular