The Mexican Peso (MXN) has seen some small gains in its major pairs on Thursday, ahead of the Bank of Mexico (Banxico) September policy meeting. This event is likely to have a high impact on exchange rates, making it an important event for the currency this week. Analysts expect a 0.25% cut to the central bank’s cash rate during this meeting, which could lead to a depreciating effect on the currency as it becomes less attractive for investors. The consensus among economists is that Banxico will opt for this rate cut, with only a few expecting a larger 0.50% reduction. Recent inflation data and economic activity in Mexico have influenced these expectations, with some arguing for a more moderate rate cut to avoid overheating.
At the previous meeting in August, Banxico decided to cut interest rates by 0.25%, but the decision was a close call. This has increased the chances of another 0.25% cut rather than a larger reduction this time. Technical analysis of USD/MXN suggests that the pair is steadily climbing within its rising channel, solidifying an overall bullish bias. The recent close above certain levels is providing bullish confirmation for further upside potential. If USD/MXN can break above certain resistance levels, it could continue to rise towards its yearly high. Overall, the trend for USD/MXN appears to be upward in the short, medium, and long-term.
The Bank of Mexico, or Banxico, is the country’s central bank responsible for setting monetary policy and preserving the value of the Mexican Peso. Its main objective is to maintain low and stable inflation levels, typically around 3%. Banxico uses interest rates as the main tool to guide monetary policy, adjusting them based on inflation levels. When inflation is high, the bank raises rates to cool the economy and control inflation. A key factor influencing the Mexican Peso is the rate differential between Banxico and the US Federal Reserve. Banxico usually meets eight times a year and often reacts to monetary policy measures set by the Federal Reserve.
The decisions made by the US Federal Reserve greatly influence Banxico’s monetary policy, as the central bank often reacts to or anticipates actions taken by the Fed. This was seen during the Covid-19 pandemic, where Banxico raised rates before the Fed to prevent a depreciation of the Mexican Peso and capital outflows. By closely monitoring the decisions made by the US Federal Reserve, Banxico aims to maintain stability in the Mexican economy through its own monetary policy measures. The upcoming Banxico meeting is expected to have a significant impact on the Mexican Peso based on potential interest rate cuts and economic data.
