- USD/MXN falls to two-day lows at 20.38 after Banxico’s 25 basis point cut.
- The Central Bank of Mexico reduces its interest rates to 10.25% in November.
- Banxico’s statement revises short-term inflation forecasts upward but anticipates greater flexibility.
The Mexican Peso has recovered about 20 pips against the US Dollar following Banxico’s decision to reduce its interest rates by 25 basis points to 10.25% in November. USD/MXN has fallen after the announcement to a two-day low at 20.38, and is trading at the time of writing above 20.40, losing 0.59% on the day.
Banxico lowers interest rates to 10.25% and anticipates greater flexibility
He Bank of Mexico (Banxico) announced this Thursday that it is cutting its overnight interbank interest rate by 25 basis points (pb), placing it at 10.25% compared to the previous 10.5%, as expected. This is the lowest percentage seen in interest rates since November 2022.
The entity, which has made the decision to reduce interest rates unanimously, has revised upwards its inflation forecasts for the fourth quarter of 2024, placing them at 4.7% compared to the 4.3% projected in the previous meeting. For the first quarter of 2025, a CPI of 3.9% is expected compared to the 3.7% previously forecast. The forecast maintains the fourth quarter of next year as the date where the 3% objective will be reached.
In the statement, Banxico anticipates that the inflationary environment will allow additional adjustments to the reference rate in upcoming meetings.
USD/MXN Price Levels
USD/MXN just crossed lower the 100-period moving average on the one-hour chart at 20.45, signaling further declines. The first important support appears in the psychological zone of 20.00. A further decline would find containment around 19.75, where the lows of recent weeks are.
On the upside, the main barrier is at the 2024 high reached on November 6 at 20.80. Higher, the resistance to overcome will be in the region of 21.00.
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.
