- The Mexican Peso appreciates 0.59% against the US Dollar, prepared for a strong weekly performance.
- Banxico minutes suggest a possible 50 bp rate cut in December, improving the peso’s prospects.
- President Sheinbaum optimistic about avoiding Trump’s proposed 25% tariffs, strengthening the stability of the MXN.
The Mexican Peso appreciated against the US Dollar during the North American session, as the Dollar extended its decline and is about to record its biggest weekly loss in three months. Speculation that US President-elect Donald Trump might tone down his trade rhetoric weighed on the US currency. Therefore, USD/MXN is trading at 20.29, down 0.59%.
Mexico’s economic agenda was light on Friday, but the Bank of Mexico (Banxico) revealed the minutes of its Nov. 14 monetary policy meeting on Thursday.
Banxico board members voted unanimously in favor of lowering rates, and according to the minutes, members agreed that the cycle of rate cuts “should continue.” However, one of the officials suggested “a further rate adjustment” at the December meeting in light of expectations that core inflation would continue to trend downward.
Although this opens the door to a 50 bp rate cut at the next meeting, USD/MXN trended lower after Mexican President Claudia Sheinbaum and US President-elect Donald Trump held talks on Wednesday, calming fears and supporting the emerging market currency.
Earlier on Friday, President Sheinbaum said she is convinced she would reach a deal with the US to avoid President-elect Trump’s threat of 25% tariffs, according to Bloomberg. She added, “I am convinced that we are going to reach an agreement while we defend our sovereignty, with respect for Mexicans and with respect for Mexico, with the collaboration that one government should have with another.”
Meanwhile, US data suggests the economy could be slowing faster than expected. Earlier, the Chicago Purchasing Managers’ Index (PMI) for November fell. It was the second monthly drop from September levels.
Daily Market Summary: The Mexican Peso Appreciates During the Week
- Banxico board members noted that the Mexican peso traded widely, depreciating sharply and exhibiting volatility mainly due to uncertainty over the US elections.
- They added that inflation risks lean upward, citing further depreciation of the exchange rate. They acknowledged that the inflation outlook still requires a generally restrictive policy stance.
- Banxico members “agreed that Mexico’s inflation outlook has improved, after the significant global shocks of previous years. However, they warned that it still faces challenges.”
- In the bank’s quarterly report, Banxico Governor Victoria Rodríguez commented that they monitored the recent volatility of the Peso and added that there has been no need to intervene in the currency market.
- The quarterly report revealed that Banxico updated its projection for the Mexican economy to grow 1.8% in 2024, up from 1.5%. However, the central bank maintained its projection of the Gross Domestic Product (GDP) for 2025 at 1.2%.
- The CME FedWatch tool suggests investors see a 66% chance of a 25 basis point (bp) rate cut at the Federal Reserve’s December meeting, up from 59% a day earlier.
- Data from the Chicago Board of Trade, via the December federal funds rate futures contract, shows that investors are estimating a 24 bp easing by the Fed by the end of 2024.
Technical Outlook: Mexican Peso Recovers as USD/MXN Falls Below 20.40
USD/MXN remains biased higher despite being set to end the week with losses. However, the pair has formed a successive series of higher highs and higher lows, suggesting that buyers are in charge. If buyers hold the exchange rate above the November 19 low of 20.06, this could pave the way for further upside.
The first resistance would be 20.50, followed by the yearly high (YTD) at 20.82. If broken, the next stop would be 21.00, before the March 8, 2022 high at 21.46, followed by the November 26, 2021 high at 22.15.
On the contrary, if the bears drag the exchange rate below 20.06, the next support would be 20.00. With further weakness, the bears could challenge the 50-day SMA at 19.92. Key support levels lie below the latter with the 100-day SMA at 19.48 before the psychological figure of 19.00.
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.
