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The Mexican Peso stops its recovery despite the optimistic market sentiment and the weakness of the USD

  • The Mexican Peso (MXN) has halted its seven-day rally against the US Dollar (USD), while the USD/MXN pair posted a slight rebound on Tuesday.
  • Mexico’s economic calendar remains relatively calm, with the upcoming mid-November inflation report relevant to Banxico’s future monetary policy decisions.
  • The USD/MXN pair awaits the Minutes of the last meeting of the Federal Reserve (Fed).

He Mexican peso (MXN) loses some ground against the US Dollar (USD) in early trading of the North American session on Tuesday, despite overall weakness in the US Dollar, primarily against the G8 currencies in the Forex space. The Peso halted its seven-day recovery after refreshing a two-month high of 17.06, but the USD/MXN has reversed its downward trend and rose 0.47%, trading at 17.18.

Mexico’s economic calendar remains light, with USD/MXN traders keeping an eye on economic data that could weigh on Bank of Mexico (Banxico) futures decisions regarding monetary policy. On Wednesday, Mexico’s retail sales are expected to show improvement, and on Thursday, the mid-November inflation report will most likely see a jump in headline inflation, in contrast to core inflation, which is expected to fall further towards the 5% threshold.

Meanwhile, the USD/MXN pair continues to be driven by economic data from the United States (US) and the mood of the markets. The latest data revealed that US Existing Home Sales recorded the biggest drop since November 2022. The US Federal Reserve (Fed) will reveal the latest meeting minutes at 19:00 GMT.

Daily Moves: Mexican Peso Declines Despite Weaker US Dollar, USD/MXN Challenges 17.20

  • The USD/MXN pair is trading below the 20-day, 50-day, 100-day, and 200-day SMA, showing a bearish bias.
  • The Dollar Index (DXY), which measures the value of the Dollar against a basket of currencies, registers losses of more than 0.15% and is trading at 103.28.
  • The 10-year US Treasury yield falls two basis points to 4.39%.
  • US existing home sales fell 4.1%, from 3.95 million to 3.79 million, below estimates of 3.9 million in October.
  • Mexico’s Gross Domestic Product (GDP) figures will be released on Friday, along with the current account for the third quarter.
  • Data released last week showed a drop in prices paid by consumers and producers in the US, increasing investor speculation that the Fed’s tightening cycle is over.
  • The swaps market suggests traders expect 100 basis points of rate cuts from the Fed in 2024.
  • The latest report on inflation in Mexico, published on November 9, showed that prices grew 4.26% year-on-year in October, below forecasts of 4.28% and the previous rate of 4.45%. In monthly terms, inflation stood at 0.39%, slightly above the consensus of 0.38% and 0.44% in September.
  • Banxico revised its inflation forecasts from 3.50% to 3.87% for 2024, which remains above the central bank’s target of 3.00% (plus or minus 1%).

Technical Analysis: Mexican Peso loses a step as USD/MXN changes hands above 17.15

The USD/MXN bearish bias remains intact, but Tuesday’s price action is forming a “bullish engulfing” candlestick pattern, suggesting the pair could turn higher in the near term. If the pair breaks above 17.28, it could pave the way for a test of the 100-day SMA at 17.34. Once surpassed, the door could open to challenge the confluence of the 20-day and 200-day SMAs around 17.61.

On the other hand, if USD/MXN sellers keep the spot price below 17.28, they will remain in control but will need to drag prices below 17.00 to consolidate the bearish bias on their way to the year-to-date low. 16.62.

Frequently asked questions about the Mexican peso

What key factors drive the Mexican peso?

The Mexican peso (MXN) is the most traded currency among its Latin American peers. Its value is largely determined by the evolution of the Mexican economy, the policy of the country’s central bank, the volume of foreign investment in the country and even the levels of remittances sent by Mexicans living abroad, especially in the United States. Joined. Geopolitical trends can also move 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, since the country is considered a key manufacturing center on the American continent. Another catalyst for the MXN is Oil prices, since Mexico is a key exporter of this raw material.

How do Banxico’s decisions affect the Mexican peso?

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 in a tolerance band between 2% and 4%. %). To do this, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico tries to control it by raising interest rates, which makes borrowing more expensive for households and companies, thus cooling demand and the economy in general. Higher interest rates are generally positive for the Mexican peso (MXN), as they translate into higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken the MXN.

How do economic data influence the value of the Mexican peso?

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, especially if this strength is accompanied by high inflation. However, if economic data is weak, the MXN is likely to depreciate.

How does general risk sentiment affect the Mexican peso?

As an emerging market currency, the Mexican peso (MXN) tends to strengthen during periods of risk appetite, or when investors perceive broader market risks to be low and are therefore willing to commit to investments that carry a higher risk. On the contrary, the MXN tends to weaken in times of market turmoil or economic uncertainty, as investors tend to sell riskier assets and flee to more stable havens.

Frequently Asked Questions about the Mexican Peso

What is MXN?

The Mexican Peso is the legal tender of Mexico. The MXN is the most traded currency in Latin America and the third most traded on the American continent. The Mexican Peso is the first currency in the world to use the $ sign, prior to the later use of the Dollar. The Mexican Peso or MXN is divided into 100 cents.

What is Banxico and how does it influence the MXN?

Banxico is the Bank of Mexico, the country’s central bank. Created in 1925, it provides the national currency, the MXN, and its priority objective is to preserve its value over time. In addition, the Bank of Mexico manages the country’s international reserves, acts as a lender of last resort to the banks and advises the government economically and financially. Banxico uses the tools and techniques of monetary policy to meet its objective.

How does inflation impact the MXN?

When inflation is high, the value of the Mexican Peso (MXN) tends to decrease. This implies an increase in the cost of living for Mexicans that affects their ability to invest and save. At a general level, inflation affects the Mexican economy because Mexico imports a significant amount of final consumption products, such as gas, fuel, food, clothing, etc., and a large amount of production inputs. On the other hand, the higher the inflation and debt, the less attractive the country is for investors.

How does the Dollar influence the Mexican Peso (MXN)?

The exchange rate between the USD and the MXN affects imports and exports between the United States and Mexico, and may affect demand and trade flows. The price of the Dollar against the Mexican Peso is affected by factors such as monetary policy, interest rates, the consumer price index, economic growth and some geopolitical decisions.

How does the Fed’s monetary policy affect Mexico?

The exchange rate between the USD and the MXN affects imports and exports between the United States and Mexico, and may affect demand and trade flows. The price of the Dollar against the Mexican Peso is affected by factors such as monetary policy, interest rates, the consumer price index, economic growth and some geopolitical decisions.

Source: Fx Street

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