The Mexican Peso rallied against most currencies, particularly the US Dollar, after Federal Reserve Chairman Jerome Powell delivered dovish remarks. Powell highlighted progress on US inflation and hinted at balanced risks, leading to a decline in the USD/MXN exchange rate. Additionally, Bank of Mexico Governor Victoria Rodriguez Ceja suggested potential future rate cuts due to ongoing disinflation in Mexico’s economy. Despite this, the Mexican Peso gained traction and Banxico’s survey showed a downward revision in GDP and monetary policy expectations, with analysts forecasting a USD/MXN rate of 18.73 for 2024.
The Banxico survey revealed that economists expect a GDP growth rate of 2%, lower than the previous estimate of 2.1%. They also anticipate a rate cut from 11.00% to 10.25%, up from the 10.00% projection in May. Mexico’s Gross Fixed Investment increased in April, with both monthly and annual figures showing positive growth. US job openings rose in May and business activity in the manufacturing sector was mixed, with traders awaiting the release of the services sector data. The CME FedWatch Tool showed increased odds for a 25-basis-point rate cut by the Fed in September.
In terms of technical analysis, the USD/MXN pair failed to break above the June 28 high, prompting selling pressure and a drop below 18.30. Momentum favors buyers but indicates a potential decline in the near term. If the pair continues to fall, the next support levels are at 18.00 and 17.56, with the 50-day SMA at 17.37. On the other hand, if buyers push the price above 18.50, it could rally towards the year-to-date high of 18.99.
Banxico, Mexico’s central bank, aims to preserve the value of the Mexican Peso and set monetary policy to maintain low and stable inflation levels. The bank achieves this mainly through setting interest rates, which impact borrowing costs for households and businesses. Banxico’s decision-making is influenced by the US Federal Reserve, as it often reacts to or anticipates Fed’s policy measures. After the Covid-19 pandemic, Banxico raised rates before the Fed to prevent a significant depreciation of the Mexican Peso and stabilize the country’s economy.
