The Mexican Peso has been on a positive trajectory, appreciating against the US Dollar for the third consecutive day, hitting a daily low below 18.00. The currency’s performance comes ahead of the Bank of Mexico’s (Banxico) next monetary policy decision on Thursday. Analysts are now less convinced that Banxico will cut rates following a significant depreciation of the Peso after the June 2 general election. The USD/MXN currently trades at 18.02, down by 0.29%.
June’s mid-month inflation data showed a decline in core figures, while general inflation expanded but stalled compared to the previous month. This data led to a further drop in the USD/MXN exchange rate, pushing it to an 11-day low and testing the 18.00 psychological level as investors await Banxico’s decision.
Analysts have adjusted their expectations regarding Banxico’s rate cut, shifting it from June to August. The Citibanamex survey also modified the USD/MXN forecast from 18.00 to 18.70. Additionally, the consensus for Mexico’s economic growth saw a revision of the Gross Domestic Product (GDP) for 2024 from 2.2% to 2.1% YoY.
On the other side of the border, Federal Reserve (Fed) officials are adopting a cautious approach. Chicago Fed President Austan Goolsbee emphasized that policy remains restrictive and expressed optimism about seeing an improvement in inflation data.
The daily market digest indicates that the Mexican Peso has advanced as inflation jumped in June. The mid-month Consumer Price Index rose by 0.21% MoM, exceeding expectations, and expanded by 4.78% annually. Core inflation also rose but remained below estimates. The Citibanamex survey suggests that Banxico’s rate cut may happen at the August meeting, with interest rates projected to be lowered from 11.00% to 10.25%. The USD/MXN exchange rate is stabilizing following verbal interventions by Banxico’s Governor, Victoria Rodriguez Ceja.
Technical analysis shows that the USD/MXN is surging as it falls below 18.00. The ongoing pullback might lead to a challenge of the 50-day Simple Moving Average (SMA) at 17.37 before reaching the 200-day SMA at 17.23. The Relative Strength Index (RSI) indicates that sellers are in control, but caution is advised regarding a potential reversal in the ongoing downtrend.
The Banxico FAQs shed light on the central bank’s role in preserving the value of the Mexican Peso and setting monetary policy. Banxico’s main tool for guiding policy is adjusting interest rates in response to inflation levels. The central bank usually meets eight times a year, with decisions often influenced by the US Federal Reserve’s policy measures. The timing of Banxico’s decisions often aligns with or anticipates moves by the Fed to maintain stability in the Mexican economy.
