The Mexican Peso has been strengthening for the second consecutive day against the US Dollar, with traders increasing the odds of a 25 basis points Fed rate cut to 85.9%. The Banxico minutes confirmed an economic slowdown, suggesting that less restrictive policies are needed as Mexican industrial production contracts. The US Producer Price Index data supported disinflation, while University of Michigan Consumer Sentiment weakened and inflation expectations rose.
The USD/MXN pair traded at 19.38 after hitting a low of 19.61 in early trading on Thursday. Data from the US Bureau of Labor Statistics showed prices paid by producers were in line with estimates, indicating an evolving disinflation process. The University of Michigan Consumer Sentiment deteriorated, while inflation expectations for the next year increased for the first time in five months.
The Mexican Peso continued to gain against the US Dollar as the odds of a 25-basis-point rate cut by the Fed increased to 85.9%. Mexican Industrial Production contracted in monthly and annual figures, painting a gloomy economic outlook. Banxico’s minutes indicated the need for less restrictive policy due to the economic slowdown.
The Mexican Peso rallied despite weak Industrial Production data in August, showing a reduction in interest rate differentials between Mexico and the US. Banxico’s poll projected a 50 bps rate cut for the remainder of 2024. The US Producer Price Index for September came in slightly higher than expected.
The USD/MXN technical outlook suggests that the Mexican Peso is counterattacking as the exchange rate falls below 19.35. The uptrend remains in place, but consolidation within the 19.00-19.50 area is likely. Momentum shows that sellers are in charge, with support levels around 19.00 and resistance around 19.50.
The Mexican Peso is influenced by various factors including the Mexican economy’s performance, central bank policy, foreign investment, remittances, and geopolitical trends. Banxico’s main objective is to maintain low and stable inflation levels through interest rate adjustments. Macroeconomic data releases can impact the MXN valuation, with a strong economy benefiting the currency. As an emerging-market currency, the Mexican Peso tends to perform well during risk-on periods and weaken during times of market turbulence.
