The Mexican Peso has experienced a decline against the USD as the Bank of Mexico (Banxico) revised down Mexico’s growth expectations for 2024 and 2025. Political unrest surrounding judiciary reform and the dismantling of autonomous bodies has further impacted the Peso. Banxico forecasts inflation to reach the 3% target by late 2025, with risks to economic growth tilted downward due to a slowing US economy.
President-elect Claudia Sheinbaum has reassured foreign investors of the security of their investments amid the judiciary reform and dissolution of autonomous bodies proposed by President Andres Manuel Lopez Obrador. Banxico has revised Mexico’s GDP downward to 1.5% for 2024 and 1.2% for 2025, attributing the changes to weak national economic activity and uncertainty.
Banxico expects inflation to reach 3% by the end of 2025 and warns of downside risks to growth, particularly with the economic slowdown in the US impacting Mexico’s economic outlook. Governer Victoria Rodriguez Ceja states that adjustments to interest rates will be gradual based on macroeconomic conditions.
The US Bureau of Economic Analysis has upwardly revised the second estimate for US GDP for Q2 2024, while the Department of Labor reported a decrease in the number of Americans filing for unemployment benefits. This positive data from the US has contributed to the strengthening of the USD against the Mexican Peso.
The decision by Mexican President Andres Manuel Lopez Obrador to pause relations with the US and Canadian ambassadors has also weighed on the Mexican Peso. Comments from US Ambassador Ken Salazar criticizing the judiciary reform have caused tension between the countries. US GDP for Q2 2024 surpassed expectations at 3%, while the jobless claims decreased, further impacting the Mexican Peso.
The technical outlook for the USD/MXN pair suggests a bullish trend favoring the USD as it approaches the 20.00 resistance level. If broken, the pair could target higher levels above 20.22 and 20.57. Conversely, a decline below 19.50 could lead to a test of support at 19.00 and potentially lower levels at 18.59.
Banxico, Mexico’s central bank, plays a crucial role in maintaining the value of the Mexican Peso and setting monetary policy. The bank uses interest rates as a tool to guide policy, aiming to keep inflation low and stable around the 3% target level. Banxico’s decisions are often influenced by the US Federal Reserve, with the central bank meeting eight times a year to adjust policy in response to global economic conditions.
