The Mexican Peso (MXN) has been rising against key pairs after the release of inflationary data in Mexico, suggesting that interest rates may remain high. With interest rates at 11.00%, foreign capital inflows are being drawn to Mexico, supporting the appreciation of the Peso. The USD/MXN pair has broken below the key low of 17.87 which was previously set on June 24.
The appreciation of the Mexican Peso is also supported by carry flows, as foreign investors find the relatively high interest rates in Mexico attractive. The carry trade operation involves borrowing in a currency with low interest rates and investing in a currency with high interest rates, such as MXN. This difference in interest payments leads to profit for investors. At present, one US Dollar buys 17.81 Mexican Pesos, while other pairs like EUR/MXN and GBP/MXN are also trading at favorable levels.
The Mexican Peso is experiencing a recovery as investors analyze recent macroeconomic data showing inflation on the rise in June. Headline Inflation registered at 0.38% on a monthly basis, exceeding expectations and higher than the previous month. Core Inflation, excluding volatile components, was slightly below expectations but higher than in May. The 12-month Inflation rate for June came out higher than forecasted. The outlook for interest rates in Mexico may be influenced by the decrease in core inflation, with the possibility of an August rate cut.
In terms of technical analysis, the USD/MXN pair has breached the key low of 17.87 set on June 24. This break confirms the down-trending bias, with the next target at the 50-day Simple Moving Average of 17.50. The short-term trend is bearish, suggesting further downside potential. The medium and long-term trends remain uncertain, awaiting further developments in the market.
One crucial economic indicator to monitor is the core inflation index released by the Bank of Mexico, which measures price movements excluding taxes and energy. This indicator is used by the central bank to set interest rates and has a significant impact on the purchasing power of the Mexican Peso. A high reading is considered positive for the Peso, while a low reading is seen as negative. Investors should pay attention to this indicator for insights into the future movement of the currency.
