- Banxico raises rates by 75 basis points, more of that magnitude could come.
- Activity index accelerates in April in Mexico.
- Rise in stocks and decline in US yields weaken the dollar.
The Mexican peso is among the currencies that have risen the most in recent sessions, given a recovery in the equity markets and after the rise in rates by the Bank of Mexico.
USD/MXN returned below 20.00 on Friday, but this time with more conviction and dipped below. It is trading at 19.89, the lowest level in two weeks. The pair is trading with a clear bearish bias in the short term and is coming back below the 20-day moving average (19.92).
It is the sixth consecutive daily decline for the pair, despite which the technical indicators are not yet at oversold levels. The next strong support is at the 19.70 area. A return above 20.25 would remove the very short-term bearish bias. So far this week, USD/MXN is down 2.5%, the best week for the Mexican peso since March.
Banxico raises rates like never before
The good moment of several emerging market currencies is behind the rise in stocks and the decline in Treasury bond yields. This was triggered by bad economic data from the US and Europe.
In the particular case of the Mexican peso, the decision of the Bank of Mexico Thursday to raise the benchmark interest rate by 75 basis points to 7.75%, as expected. The decision was unanimous. The central bank indicated that if necessary it will continue with increases of this magnitude. The next meeting is August 11.
Banxico estimates that inflation will end the year at 7.5% (revised from 6.4%) after peaking at 8.1% in the third quarter.
On the positive side, it was learned on Friday that the economic activity index in the month of April it registered a rise of 1.1% exceeding expectations; Compared to a year ago, the increase was 1.3%, an improvement compared to 0.4% in March. On Thursday, the inflation of mid june recorded a rise in the annual rate to new highs in decades at 7.88%.
Technical levels
Source: Fx Street
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