- The Mexican peso weakens from the key 20.00 zone amid US dollar strength ahead of the Fed decision.
- The strong US data has increased speculation that the Fed will take a hawkish stance after cutting rates on Wednesday.
- From a broader perspective, USD/MXN is in a downtrend but needs additional momentum to break the 20.00 level.
The Mexican Peso (MXN) remains range-bound on Tuesday, within striking distance of the key 20.00 level against the US Dollar (USD). Investors are awaiting key monetary policy decisions from the Federal Reserve (Fed) and the Bank of Mexico (Banxico) this week.
Preliminary US S&P Global Purchasing Managers’ Index (PMI) data released on Monday revealed an unexpected improvement in services activity in December, and the market is bracing for a strong November consumption reading later today.
These figures support the rhetoric of US economic exceptionalism and strengthen the case for very gradual interest rate cuts by the Fed next year. This sentiment keeps investors’ risk appetite in check, boosting US Treasury yields and lifting the US dollar across the board.
In Mexico, retail consumption is expected to have increased in October, although still at levels well below the same month last year. Consumer inflation and industrial production data disappointed last week, strengthening the case for a 25 basis point (bps) rate cut by Banxico on Thursday.
Market Drivers: US Dollar Resumes Gains With All Eyes on Fed
- The DXY Dollar Index trades higher on Tuesday, approaching multi-week highs amid higher US Treasury yields and market expectations of a “hawkish taper” by the Fed on Wednesday.
- US Treasury yields continue to rise. The benchmark 10-year yield has surpassed the 4.40% level in a 7-day rally after bouncing off 4.13% early last week.
- The preliminary US Services PMI jumped to 58.5 in December, its best performance in more than three years, from 56.1 in November, against expectations of a moderate slowdown to 55.7.
- The preliminary US Manufacturing PMI contracted to 48.3 from 49.7 in November, but the composite data points to healthy economic growth in the final quarter of the year.
- Later today, US retail sales are expected to have increased 0.5% in November, up from 0.4% the previous month. Excluding automobiles, consumption is forecast to accelerate to a pace of 0.4% from 0.1% the previous month.
- The CME FedWatch tool shows that a 25 bps interest rate cut by the Fed on Wednesday is almost completely priced in, and the market expects one or two more such cuts next year.
- In Mexico, retail sales are expected to have increased 0.2% in October, up from 0.1% in September. However, compared to October last year, they are expected to decrease by 1.6%.
- The Bank of Mexico is expected to reduce interest rates by 25 basis points on Thursday, to a rate of 10.00%, amid growing concerns that the increase in US tariffs will affect the Mexican economy.
US Dollar PRICE Today
The table below shows the percentage change of the US Dollar (USD) against major currencies today. US dollar was the strongest currency against the Australian dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.21% | -0.08% | -0.28% | 0.20% | 0.43% | 0.35% | 0.23% | |
| EUR | -0.21% | -0.28% | -0.50% | -0.01% | 0.22% | 0.14% | 0.03% | |
| GBP | 0.08% | 0.28% | -0.20% | 0.28% | 0.51% | 0.43% | 0.33% | |
| JPY | 0.28% | 0.50% | 0.20% | 0.48% | 0.72% | 0.62% | 0.54% | |
| CAD | -0.20% | 0.00% | -0.28% | -0.48% | 0.24% | 0.15% | 0.05% | |
| AUD | -0.43% | -0.22% | -0.51% | -0.72% | -0.24% | -0.08% | -0.20% | |
| NZD | -0.35% | -0.14% | -0.43% | -0.62% | -0.15% | 0.08% | -0.10% | |
| CHF | -0.23% | -0.03% | -0.33% | -0.54% | -0.05% | 0.20% | 0.10% |
The heat map shows percentage changes for major currencies. The base currency is selected from the left column, while the quote currency is selected from the top row. For example, if you choose the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change shown in the box will represent USD (base)/JPY (quote).
Mexican Peso Technical Outlook: USD/MXN has strong support in the 20.00 zone
USD/MXN is trading lower from its late November highs near 20.80, but the psychological level of 20.00 continues to sustain bearish attempts. The pair has been consolidating between the aforementioned support of 20.00 and 20.30 for the last seven trading days.
The Mexican Peso would need additional momentum to break the 20.00 level against the US Dollar and focus its attention on the October 24-25 and November 7 lows of 19.75
To the upside, USD/MXN needs to confirm above 20.30 before targeting the December 2 high at 20.60 and the November peak around 20.80.
USD/MXN 4-hour chart
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.
