The Mexican Peso (MXN) experienced a recovery despite a dovish tilt to the Bank of Mexico (Banxico) policy meeting on Thursday. Banxico opted to keep interest rates steady at 11.00%, as anticipated. However, changes in both voting distribution and language of the statement indicated a higher likelihood of interest-rate cuts in the future. This led to a slight weakening of the Mexican Peso, as lower interest rates typically deter foreign capital inflows. As of the latest update, one US Dollar (USD) is equivalent to 18.30 Mexican Pesos, with EUR/MXN trading at 19.58 and GBP/MXN at 23.14.
Following the Banxico policy meeting, the Mexican Peso witnessed a rebound after initially weakening. The meeting showcased some new developments, including a change in language within the statement and a vote by Omar Mejia in favor of interest rate cuts, giving the meeting a dovish tone. While near-term inflation forecasts were adjusted upward due to the impact of a weaker Mexican Peso, long-term forecasts remained unchanged. Analysts at Rabobank noted a clear dovish tilt in the statement, suggesting the possibility of further rate cuts this year. Capital Economics also anticipates a rate cut in August, with differing projections for the number of cuts and year-end policy rates.
In terms of technical analysis, USD/MXN displayed volatility following the Banxico meeting. The pair experienced a rise to 18.60 before retracing to the 18.30s, highlighting uncertainty regarding the short-term trend. The formation of a three-wave ABC correction suggested a shift to a short-term uptrend, but the direction remained unclear. A move below 18.06 would indicate a resumption of the downtrend, while a break above 18.60 could signal an uptrend continuation. The long-term trend direction also remains uncertain at this point.
The Mexican Peso (MXN) is heavily influenced by various factors, including the country’s economic performance, central bank policies, foreign investment levels, and geopolitical trends. Remittances from Mexicans living abroad, particularly in the United States, also impact the value of MXN. Banxico aims to maintain low and stable inflation, with interest rates adjusted accordingly. Strong macroeconomic data, high economic growth, and low unemployment boost the Mexican Peso, while weak economic indicators may lead to depreciation.
As an emerging-market currency, the Mexican Peso tends to perform well during risk-on periods when market risks are perceived as low. Conversely, the currency may weaken during times of market turmoil and economic uncertainty as investors seek safer havens. Factors such as oil prices, nearshoring trends, and geopolitical events can also impact the valuation of the Mexican Peso. Overall, the MXN remains a volatile currency influenced by a multitude of domestic and global factors.
