The Mexican Peso (MXN) is on the rise in its key pairs, supported by strong investor risk appetite. This positive sentiment favored the Mexican Peso and other commodity-linked currencies. During the Asian session, stocks in various markets, including China, Japan, and South Korea, saw gains. This was attributed to the restarting of free-trade negotiations between these countries and advancements in technology stocks. The USD/MXN pairs are currently trading at 16.68, EUR/MXN at 18.09, and GBP/MXN at 21.25.
Despite expectations of an interest rate cut by the Bank of Mexico (Banxico) in June, the Mexican Peso continues to recover. A survey conducted by Mexico’s Citibanamex revealed that a majority of economists anticipate a rate cut from 11.00% to 10.75% at Banxico’s June meeting. Lower interest rates typically discourage foreign capital inflows, which can negatively impact a currency. However, Banxico had previously decided to keep interest rates unchanged at its May meeting, with policymakers expressing a range of opinions on future rate cuts. Stubborn inflation in the services sector appears to be a key factor in preventing further rate cuts by Banxico.
The US Federal Reserve is expected to delay its first interest rate cut due to robust economic data in the US. This is despite market expectations of a possible rate cut in September based on interest-rate futures calculations. In Europe, the European Central Bank is likely to cut interest rates in June, followed by a data-dependent approach. In the UK, there is speculation that the Bank of England will lower interest rates in response to cooling inflation and weak retail sales data.
In terms of technical analysis, the USD/MXN pair has slightly weakened after peaking on May 23. While a short-term uptrend remains intact, a break above the 16.76 level could confirm a continuation of the uptrend. However, the Moving Average Convergence Divergence (MACD) indicator has given a sell signal, possibly indicating further weakness. There is a risk of the pair continuing lower in the medium and long term due to bearish trends.
The Bank of Mexico, also known as Banxico, plays a crucial role in guiding Mexico’s monetary policy and preserving the value of the Mexican Peso. By setting interest rates, Banxico aims to maintain low and stable inflation levels within its target range. Interest rate differentials between Banxico and the US Federal Reserve are key factors influencing the strength of the Mexican Peso. Banxico meets eight times a year and often takes cues from the decisions of the Federal Reserve, reacting or sometimes anticipating monetary policy measures set by the Fed. Following the Covid-19 pandemic, Banxico raised rates before the Fed to stabilize the Mexican Peso and prevent capital outflows.
