- The Mexican weight falls while the operators prepare for a rate cut of 50 basic points in the medium of cooling signals of inflation and weak economic activity.
- Banxico is expected to reduce rates in 50 PBs as the economy shows signs of fatigue.
- Economic activity remains in contraction despite solid retail sales and a marginal improvement in January.
The Mexican peso (MXN) depreciates against the US dollar (USD) during the American session on Wednesday after the publication of economic data during the week, which highlighted the evolution of the disinflation process as well as an economy that is weakening. The USD/MXN is quoted at 20.08, rising 0.20%.
The operators are preparing for the monetary policy decision of the Bank of Mexico (Banxico) on Thursday. The Central Bank is expected to reduce rates in 50 basic points (PBS) from 9.50% to 9% due to the evolution of the disinflation process and signs that the economy is slowing down.
This week, Mexico’s economic calendar revealed that economic activity in January improved compared to December, but remained in contraction territory for the second consecutive month. Meanwhile, the inflation data were positive, since the inflation of the first half of March fell both in general and underlying readings, indicating the evolution of the disinflation process.
Other data showed that retail sales in January were solid, exceeding the reading of the previous month and forecasts, but it is the first solid reading since April 2024, since sales contracted during the last eight consecutive months.
Given the context, a greater increase in the USD/MXN is expected. However, if the US president, Donald Trump, grants tariff exemptions to Mexico, the prospects for the economy could improve. Therefore, the weight could be strengthened and exerting downward pressure on the exotic pair.
This week, the Mexico’s agenda will include the commercial balance and the decision of Rates de Banxico. On the other side of the border, the US Agenda will include the publication of the FED inflation indicator, the Personal Consumption Price Index (PCE).
What moves the market today: the Mexican weight falls before the Banxico meeting
- The CITI expectations survey revealed that most private economists expect Banxico to reduce rates at 50 basic points. According to the survey, Mexico’s main reference rate is expected to end 2025 by 8%, below 8.25%.
- The same survey projects that the USD/MXN ends at 20.98, below 21.00 in the last survey.
- Inflation expectations remained anchored in the high range of 3%, while the GDP is expected to expand 0.6%, below 0.8%in the last survey.
- The operators had discounted that the FED would make the policy more flexible in 64 basic points (PBS) throughout the year, according to data from the Chicago Commerce Board.
Technical perspective of the USD/MXN: The Mexican weight loses traction while the USD/MXN rises above 20.10
The USD/MXN maintains a bullish bias. Although he has renewed a maximum of two days in 20.16, he fell below 20.10, racing the way for a greater fall. The relative force index (RSI) shows that the impulse does not support buyers or sellers, which suggests unstable negotiation conditions.
That said, the first key support would be the figure of 20.00. If it is exceeded, the following support would be the Simple Mobile (SMA) of 200 days in 19.71, followed by the minimum of September 18, 19.06. On the other hand, if the USD/MXN bulls exceed the 20.20 mark, the exotic pair would be prepared to prove the confluence of 100 and 50 days smokes in 20.22 and 20.38, respectively, before the 20.50 zone.
Mexican weight FAQS
The Mexican weight (MXN) is the most commercialized currency among its Latin American peers. Its value is widely determined by the performance of the Mexican economy, the country’s central bank policy, the amount of foreign investment in the country and even remittance levels sent by Mexicans living abroad, particularly in the United States. Geopolitical trends can also affect MXN: for example, the Nearshoring process (or the decision of some companies to relocate the manufacturing capacity and supply chains closer to their countries of origin) is also considered a catalyst for the Mexican currency, since the country is considered a key manufacturing center in the American continent. Another catalyst for MXN is oil prices, since Mexico is a key exporter of the raw material.
The main objective of the Central Bank of Mexico, also known as Banxico, is to maintain inflation at low and stable levels (in or close to its 3%target, the midpoint of a tolerance band between 2%and 4%). To do this, the bank establishes an adequate level of interest rates. When inflation is too high, Banxico will try to control it by raising interest rates, which makes the indebtedness of homes and companies more cooling, thus cooling the demand and the economy in general. The highest interest rates are generally positive for Mexican weight (MXN), since they lead to higher yields, which makes 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 weight (MXN). A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only attracts more foreign investment, but it can encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this fortress is accompanied by high inflation. However, if the economic data is weak, the MXN is likely to depreciate.
As an emerging market currency, the Mexican weight (MXN) tends to rise for periods of risk, or when investors perceive that the general market risks are low and, therefore, are eager to participate in investments that carry a higher risk. On the contrary, the MXN tends to weaken at times of market turbulence or economic uncertainty, since investors tend to sell higher risk assets and flee to the most stable safe shelters.
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.
