The Mexican Peso has been gaining strength against the US Dollar, reaching a four-week high as the rally continued. Banxico’s Deputy Governor Irene Espinosa’s hawkish comments during an interview have contributed to the surge in the Mexican currency. On the other hand, US inflation data was released showing mixed results, reigniting speculation that the Federal Reserve would lower interest rates in September. Currently, the USD/MXN is trading at 16.61, below the 2023 low of 16.62.
Mexico’s economic docket featured Banxico’s Deputy Governor Irene Espinosa, who expressed concerns that the rate cut in March may have delayed inflation convergence to the central bank’s target. In the US, the core Consumer Price Index (CPI) eased from 3.8% to 3.6% YoY in April, which relieved pressure on the Fed. Following the data release, US equities hit new all-time highs, while the Greenback experienced a decline alongside US Treasury yields. Futures contracts indicate a potential 41 basis points reduction by the end of the year.
Data from the CME FedWatch Tool indicates an 83% chance of a 25 bps rate cut at the September meeting, slightly lower than the previous estimation of 87%. The US Conference Board revealed a decline in the Leading Economic Index for April, signaling softer economic conditions ahead. Banxico is reportedly divided among its members, with talks of lowering rates in the upcoming meeting. Mexico’s economic docket is expected to release Retail Sales on May 20, followed by GDP and inflation figures on May 23.
Technical analysis of the USD/MXN pair shows a downward trend as buyers pushed the exchange rate past the 50-day Simple Moving Average (SMA) near 16.77. Momentum favors Mexican Peso holders, with the Relative Strength Index (RSI) aiming downwards. If the USD/MXN falls below 16.50, it could test the year-to-date low of 16.25. On the other hand, reclaiming the 50-day SMA could lead to a rally towards the 100-day SMA at 16.92.
The Mexican Peso (MXN) is influenced by various factors including the performance of the Mexican economy, Banxico’s policy decisions, foreign investment, remittances, geopolitical trends, and oil prices. Banxico’s main goal is to maintain low and stable inflation levels, which is achieved through interest rate adjustments. Macroeconomic data releases play a crucial role in assessing the state of the economy and impact MXN valuation. As an emerging-market currency, MXN tends to thrive during risk-on periods and weaken during times of market turbulence.
