- The Mexican Peso weakened on Monday after three consecutive days of gains.
- Rising odds of further interest rate cuts and slowing growth prospects had weakened the peso’s peers.
The USD/MXN daily chart shows three consecutive days of decline, a pattern called “Three Black Crows”.
The Mexican Peso (MXN) is trading moderately against its key peers in early trading on Monday, following a week in which the Peso rose sharply, gaining around 3.9% on average against the US Dollar (USD), the Euro (EUR) and the British Pound (GBP).
Much higher odds that the US Federal Reserve (Fed) will cut interest rates by a larger than standard 0.50% at its meeting on Wednesday fueled the appreciation of the Mexican currency against the USD last week.
From odds of only around 15% midweek, following the release of the US August Consumer Price Index (CPI), market-based odds of a 0.50% cut by the Fed have now risen to around 59%, according to the CME FedWatch tool.
A further cut in U.S. base interest rates would widen the already wide interest rate differential with Mexico, where interest rates set by the Bank of Mexico (Banxico) are 10.75% versus the Fed’s 5.25%-5.50%. This encourages capital flows into the Mexican Peso because it can earn more interest.
Overall, pessimistic expectations regarding the UK and Eurozone economic outlook led to MXN gains against the EUR and GBP. Weak UK GDP growth data and a downward revision of GDP forecasts by the European Central Bank (ECB) acted as catalysts.
Mexican Peso Rebounds as Political Risk Stabilizes
The Mexican Peso may be gaining momentum on evidence of a less negative assessment of its political prospects.
The currency lost more than 10% in June following a general election in which the leftist Morena coalition won a supermajority. Investors feared the impact of reforms the party wanted to push through, affecting the judicial system and industry regulators, which they argued could reduce foreign investment in the country.
Ratings agency Moody’s has warned of a possible downgrade as a result of the reforms, and leading investment banks such as Morgan Stanley and Bank of America have also expressed concerns.
The first tranche of reforms was approved by the Mexican Senate last week and is on track to become part of the constitution, and while the news caused some volatility for the Peso, markets have since stabilized.
Rating agency Fitch has presented a more neutral, though still slightly negative, view of the country’s creditworthiness in a recent note, FXStreet analyst Christian Borjon Valencia reported on Friday.
“The rating outlook is stable, meaning we are seeing a balance between strengths and weaknesses. Before seeing a direct downgrade of the sovereign rating, what could be expected from us is a change in the outlook, either from stable to positive or from stable to negative, with the latter likely to occur,” said Gerardo Carrillo, Regional Director for LATAM at Fitch Ratings.
Furthermore, Banxico’s Director of Economic Research, Alejandrina Salcedo, “affirmed that a robust rule of law environment can help generate conditions that encourage investment,” and “respecting the rule of law and public security ‘would provide greater certainty, boost the flow of investment in all regions, and contribute to capitalizing on the opportunities offered by the relocation process,'” writes Borjon Valencia.
At the time of writing, one US Dollar (USD) buys 19.22 Mexican Pesos, EUR/MXN is trading at 21.36, and GBP/MXN is trading at 25.29.
Technical Analysis: USD/MXN marks a bearish pattern of Three Black Crows
The USD/MXN has broken out of an ascending mini-channel within a broader ascending channel and has fallen for three consecutive days. This has now formed a bearish Three Black Crows candlestick pattern on the daily chart (shaded rectangle), indicating the likelihood of prices falling further in the near term.
USD/MXN Daily Chart
Odds now favor the pair to drop to the next downside support level at 19.01 (August 23 low), followed perhaps by further weakness to the 50-day simple moving average (SMA) at 18.94 and the lower trendline of the broader channel a few pips below. At that level, the price will likely find firm support to stabilize and perhaps recover.
Although the short-term trend is bearish, the medium- and long-term trends remain bullish, suggesting the possibility that the pair could eventually recover and continue trading higher.
Economic indicator
Fed interest rate decision
He Federal Reserve Board of Governors The Fed announces the interbank interest rate. This rate affects a range of interest rates set by commercial banks, building societies and other institutions for their own borrowers and depositors. Any change in the trend noted in the statement accompanying the interest rate decision will affect dollar volatility. If the Fed is firm on the economy’s inflationary outlook and raises rates, this is bullish for the dollar, while an outlook for reduced inflationary pressures will be bearish for the dollar.
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Frequency: Irregular
Dear: 5.25%
Previous: 5.5%
Fountain: Federal Reserve
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.