The Mexican Peso (MXN) has seen a recent strengthening against the US Dollar (USD) after hitting a four-week low of 17.13, now trading at 16.92. This rise comes as a result of data showing a slowing US economy, with unchanged GDP and increased unemployment claims. The Mexican economy also showed signs of improvement with expected jobs data, boosting risk appetite and leading to a weaker Greenback, helping the Peso gain ground.
The US Bureau of Economic Analysis reported GDP data for the first quarter, which remained unchanged from the preliminary reading. However, the Bureau of Labor Statistics showed an increase in unemployment claims, indicating economic weakness. These factors led to lower US Treasury yields and a decline in the US Dollar Index, which in turn strengthened the Mexican Peso, pushing it below the 17.00 mark.
The Bank of Mexico (Banxico) released its quarterly report, revising inflation forecasts upward. This has caused a split among Banxico’s Governing Council members, hinting at a potential split decision on rate cuts in June. Banxico Governor Victoria Rodriguez Ceja mentioned that progress has been made in reducing inflation, but further discussions on adjustments to the reference rate will take place at upcoming meetings.
Goldman Sachs analysts anticipate a lively June meeting from Banxico, suggesting a potential rate cut. Traders are also preparing for the release of April’s Personal Consumption Expenditures Price Index, as well as Mexico’s general election on Sunday, both of which could impact the USD/MXN path in the second half of the year.
Moving forward, the Mexican Peso’s performance may be influenced by economic data releases, with higher prices and a widening trade deficit potentially depreciating the currency. Speculation of another Banxico rate cut in June could lead to further upside in the USD/MXN. Most economists in a recent Citibanamex poll expect Banxico to cut rates from 11% to 10.75% at the end of June, with headline inflation projected at 4.21% and core inflation at 4.07% in 2024.
Technically, the USD/MXN downtrend remains in place, but buyers have pushed the exchange rate back below 17.00 after reaching 17.13. If buyers regain 17.00, they could challenge the 200-day SMA at 17.14, followed by higher levels. On the other hand, a bearish continuation could see sellers driving prices lower, potentially testing the 2023 low of 16.62 and the year-to-date low of 16.25.
Overall, the Mexican Peso is a currency influenced by a variety of factors such as economic performance, central bank policy, foreign investment, remittances, geopolitical trends, and oil prices. Understanding these factors can help traders and investors make informed decisions when trading the Mexican Peso. Additionally, monitoring economic data releases, interest rate decisions, and market sentiment can provide insight into the currency’s future performance. In times of market volatility, the Mexican Peso may experience fluctuations, making it important for traders to stay informed and adapt their strategies accordingly.
