The Mexican Peso saw a drop of 0.51% against the US Dollar after Bank of Mexico (Banxico) Governor Victoria Rodriguez Ceja suggested potential rate cuts. This speculation of a June 27 rate cut was fueled by a downtrend in core inflation. Attention now turns to US inflation data, which is critical for upcoming Federal Reserve policy decisions. The USD/MXN traded at 16.81, up 0.51%, during the North American session on Monday, following the Governor’s comments about evaluating downward adjustments to the main reference rate.
Last week, Banxico decided to keep rates unchanged at 11.00% following the first rate cut in March. The Governing Council mentioned that inflationary shocks are expected to take longer to dissipate, leading to an upward revision of inflationary figures. Meanwhile, US economic docket featured a speech by Fed Vice-Chair Philip Jefferson, who stated that it’s appropriate to keep policy rates restrictive until inflation eases. Traders are eagerly awaiting the release of the latest US inflation figures, which will play a crucial role in the Fed’s monetary policy decisions.
Mexico’s economic docket will be quiet for the current week, with Retail Sales data expected on May 20 and the release of GDP and inflation figures on May 23. Banxico will reveal its meeting minutes on May 23. Data from April shows a reacceleration in Mexico’s headline inflation but a decline in core prices. This has led to a revision in Banxico’s inflation projections, with a target of 3% expected to be achieved toward the last quarter of 2025. In the short term, the US economic calendar will feature the Producer Price Index (PPI) on May 14, followed by the Consumer Price Index (CPI) and Retail Sales on May 15. Investors are eagerly awaiting Fed Chair Jerome Powell’s speech on May 14.
Technical analysis indicates that the USD/MXN downtrend remains in play, but a daily close above 16.81 could lead to a bullish engulfing candle pattern and potentially trigger an upward move. Momentum currently favors sellers with the Relative Strength Index (RSI) remaining bearish but turning bullish. An upward move could see the exchange rate rising towards the 17.00 psychological level and potentially reaching the 200-day SMA at 17.17. On the contrary, a bearish continuation could resume if the USD/MXN drops below the 50-day SMA at 16.78.
The Mexican Peso (MXN) is among the most traded currencies in Latin America and its value is influenced by various factors including the performance of the Mexican economy, Banxico’s policy decisions, foreign investments, remittances, and geopolitical trends. Banxico’s main objective is to maintain low and stable inflation levels, with the target set at 3%. The bank uses interest rates to control inflation, with higher rates being positive for MXN due to higher yields. Macroeconomic data releases, economic growth, unemployment rates, and investor confidence all play a role in determining the strength of the Mexican Peso.
As an emerging-market currency, the Mexican Peso tends to perform well during risk-on periods when market risks are perceived to be low and investors are willing to take on higher-risk investments. On the other hand, MXN tends to weaken during times of market turbulence or economic uncertainty when investors seek safer assets. Overall, the current focus remains on upcoming inflation data and central bank decisions, which will continue to impact the USD/MXN exchange rate in the near future.
