The Mexican Peso is weakening ahead of the Bank of Mexico policy meeting, leading to a two-day decline in its value. Despite Mexican labor and trade data beating estimates, the Peso only marginally appreciates before continuing its slide. Currently, one US Dollar buys 18.42 Mexican Pesos, EUR/MXN is trading at 19.76, and GBP/MXN at 23.33.
In the run-up to the Banxico policy meeting, most economists expect the central bank to maintain its policy interest rate at 11.00%. The majority of respondents in a recent survey anticipate a rate cut in August despite indications of maintaining the current rate. The high interest rate differential between Mexico and major economies has kept the Peso strong, attracting inflows of foreign capital.
Technical analysis of USD/MXN shows the completion of an ABC corrective pattern, signaling a critical turning point. The pair could reverse the short-term downtrend with higher highs or resume the downtrend with lower lows. A move below 18.06 could see the downtrend continue towards 17.87, while a breakout above 18.39 may indicate a new uptrend with resistance levels at 18.48 and 18.68.
Many analysts have revised their expectations of Banxico cutting interest rates due to the sharp Peso depreciation post-election, causing imported inflation. The uncertainty surrounding fiscal policies also contributes to the delay in rate cuts. Technical indicators suggest a possible upside reversal in USD/MXN, with resistance levels to watch for potential higher highs.
The Bank of Mexico’s announcement of a key interest rate is a crucial economic indicator that influences all interest rates within the country. A hawkish stance on inflation by the central bank, leading to an increase in interest rates, is viewed as positive or bullish for the Mexican Peso. Market participants closely follow these announcements for insights into the country’s economic outlook.
