Despite the lack of economic data from Mexico, the Mexican Peso (MXN) dipped to 16.69 against the US Dollar in early North American trading on Thursday. This movement was influenced by a US inflation report that increased the likelihood of potential rate cuts by the Federal Reserve (Fed) in 2024. At the time of reporting, the USD/MXN pair was trading at 16.69, representing a slight increase of 0.04%.
The USD/MXN pair continued to rely on US economic data as there was no major economic release from Mexico. The US Bureau of Labor Statistics (BLS) reported an increase in the number of Americans filing for unemployment insurance, surpassing previous readings and expectations. Additionally, housing data showed mixed results with Building Permits missing expectations while Housing Starts saw a recovery in April after a disappointing performance in March.
In other news, Fed officials provided signals of patience regarding the inflation target amidst potential rate cuts in 2024. Richmond Fed President Thomas Barkin mentioned that inflation is coming down but stated that it would take more time to reach the Fed’s target. Cleveland Fed President Loretta Mester expressed satisfaction with the latest Consumer Price Index (CPI) data and highlighted the importance of reviewing upcoming data for monetary policy adjustments.
Looking at future economic developments, Mexico’s economic calendar for the week does not have any major releases, with Retail Sales scheduled for May 20 and GDP, inflation figures, and Banxico’s minutes expected on May 23. Recent data showed a reacceleration in Mexico’s headline inflation while core prices are declining, leading Banxico to revise its inflation projections to hit the 3% target in Q4 2025, later than previously expected.
The US Department of Labor announced a softening labor market with Initial Jobless Claims coming in above forecasts at 222K for the week ending May 11. Housing Starts in April increased to 1.36 million or 5.7% year-over-year, while Building Permits dropped by 3% to a rate of 1.44 million, indicating a mixed performance in the housing sector. Investors are becoming more optimistic about potential rate cuts by the Fed following a resumption of the downtrend in US inflation data and unchanged Retail Sales.
In terms of technical analysis, the USD/MXN pair remains on the defensive as it edged above 16.67. Momentum favors the Mexican Peso as the Relative Strength Index (RSI) remains in bearish territory. If the pair extends losses below 16.62, it could test 16.50 and potentially reach the year-to-date low of 16.25. On the other hand, a breakout above the 50-day Simple Moving Average at 16.78 could lead to a rally towards the 100-day SMA at 16.92 and further to the 17.00 psychological level.
The value of the Mexican Peso is influenced by various factors such as the country’s economic performance, central bank policies, foreign investment, remittances, and geopolitical trends. Banxico’s main objective is to maintain inflation at low and stable levels by setting appropriate interest rates. Strong macroeconomic data releases can lead to a positive valuation for the Peso, while weaker economic indicators may cause depreciation. MXN tends to perform well during risk-on periods and weakens during market turbulence or economic uncertainty.
