- The Mexican Peso gains traction against the US Dollar, driven by an increase in global risk appetite and a weaker Dollar.
- Wall Street responds favorably to President-elect Donald Trump’s appointment of market-friendly Treasury Secretary, influencing broader market trends.
- INEGI reports progress in Mexico’s disinflation process and a slowdown in third-quarter GDP growth, fueling speculation of possible rate cuts by Banxico.
The Mexican Peso starts the week on a strong footing against the US Dollar due to an improvement in risk appetite and overall weakness in the US Dollar. US President-elect Donald Trump’s selection of Scott Bessent as Treasury Secretary was welcomed by investors, with global stocks trading in the green. USD/MXN is trading at 20.30, down 0.45%.
Wall Street rallied after Trump picked the hedge fund manager as he is seen as a market-friendly pick. Consequently, the Dollar is heavy, losing more than 0.40%, as shown by the Dollar Index (DXY). The DXY fell below the 107.50 mark, undermined by falling US Treasury yields.
Last Friday, the National Institute of Statistics, Geography and Informatics (INEGI) revealed that the disinflation process in Mexico is evolving, approaching the 3% inflation target of the Bank of Mexico (Banxico). At the same time, despite growing, the Gross Domestic Product (GDP) fell from 2.1% to 1.6% quarter-on-quarter in the third quarter, indicating the slowdown of the economy.
Kimberley Sperrfechter, emerging markets economist at Capital Economics, revealed, “The good inflation data raises the possibility of a 50 basis point cut by Banxico in December.” He added that his base case is a 25 basis point cut, “given the strong economic activity in the third quarter and the upward pressure on interest rates in the US.”
Banxico revealed on Monday that Mexico’s economy recorded a current account surplus of $733 million in the third quarter.
Across the border, the US economic agenda remains thin ahead of Thanksgiving, although the Chicago Fed released the National Activity Index.
This week, traders await the release of Conference Board (CB) Consumer Confidence and the latest minutes from the Federal Open Market Committee (FOMC) meeting on Tuesday, followed by durable goods orders, initial claims for unemployment benefits and the personal consumption expenditure (PCE) price index, the Fed’s preferred inflation gauge, on Wednesday.
Money market players have become more cautious about the possibility of the Fed cutting rates. The CME FedWatch tool suggests investors see a 56% chance of a 25 basis point rate cut at the December meeting, unchanged from last Friday.
Daily Market Summary: Mexican Peso Advances as Risk Appetite Improves
- Last week, Bank of Mexico Governor Victoria Rodríguez Ceja said they are ready to cut interest rates if inflation continues to decline. This would put downward pressure on the Peso, which has depreciated after former US President Donald Trump’s victory boosted the Dollar as some of his policies are prone to inflation.
- The Mexican Chamber of Deputies approved the dissolution of autonomous organizations, which, according to experts, puts Mexico at risk of being excluded from the T-MEC free trade agreement.
- Mexico’s first fortnight inflation rate fell from 4.68% to 4.56%. Core inflation, seen as a better indicator of price trends because it excludes volatile energy and food prices, came in below the 3.72% forecast at 3.58% year-on-year.
- Data from the Chicago Board of Trade, via the December federal funds rate futures contract, shows that investors are estimating a 22 basis point cut by the Fed by the end of 2024.
USD/MXN Technical Outlook: Mexican Peso Appreciates as USD/MXN Falls Below 20.30
The USD/MXN uptrend remains intact, with sellers looking for a clear break below the previous year-to-date peak of 20.22, which could pave the way to test the 20.00 mark. Once those two support levels are broken, the next support would be the November 7 low and the 50-day SMA around 19.75/82, followed by the 19.50 mark.
On the contrary, if the USD/MXN resumes the uptrend, the first resistance would be 20.50. A break of the latter will expose the November 22 high at 20.55, followed by the November 12 peak at 20.69. Once broken, the next resistance would be the year-to-date high of 20.80.
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.
