Mexican Peso soars after lower-than-expected US inflation data


  • Mexican Peso strengthens against the US Dollar, with USD/MXN falling below 17.40 after a peak of 17.62.
  • The USD/MXN decline is supported by speculation the Federal Reserve might halt its monetary tightening.
  • US Treasury bond yields plunged after the US CPI report; traders eye Fed rate cuts in June 2024.
  • Banxico’s Governor Victoria Rodriguez Ceja hinted at the possibility of rate cuts in Mexico, noting that any easing of monetary policy would be gradual and data-dependent.

Mexican Peso (MXN) rallies against the US Dollar (USD) as investors speculate the Federal Reserve (Fed) has finished tightening monetary policy following a softer-than-expected inflation report in the United States (US). The USD/MXN pair dropped below 17.40 after hitting a daily high of 17.62, and it is on the brink of challenging the 100-day Simple Moving Average (SMA) at 17.33 at the time of writing.

A scarce Mexico’s economic docket kept traders adrift to the release of October’s Consumer Price Index (CPI) in the US, with figures coming below estimates and previous readings, both annually and monthly. Core CPI also slowed down, prompting investors to buy riskier assets to the detriment of the US Dollar’s safe-haven status. Consequently, US Treasury bond yields are plunging, while traders are expecting the federal funds rate to hit 5% in June 2024.

Daily digest movers: Mexican Peso climbs as US inflation slows down, despite Banxico’s Rodriguez dovish remarks

  • US October CPI rose by 3.2% YoY, below forecasts and the previous month’s rate, respectively at 3.3% and 3.7%. On a monthly basis, CPI inflation was 0%, way beneath consensus expectations and September’s rate, each at 0.1% and 0.4%.
  • Core CPI inflation stood above 4% YoY, easing below September’s and the estimated 4.1%. On month-over-month readings, inflation cooled to 0.2%, beneath last month’s and the forecast of 0.3%.
  • Richmond Fed President Thomas Barkin said he’s not convinced inflation is on a smooth glide path to 2%. He fears more needs to be done to curb inflation.
  • On Monday, Banxico’s Governor Victoria Rodriguez Ceja commented that the easing inflationary outlook could pave the way for discussing possible rate cuts. She said that monetary policy loosening could be gradual but not necessarily imply continuous rate cuts, adding that the board would consider macroeconomic conditions, adopting a data-dependent approach.
  • The latest inflation report in Mexico, published on November 9, showed prices grew by 4.26% YoY in October, below forecasts of 4.28% and prior rate of 4.45%. On a monthly basis, inflation came at 0.39%, slightly above the 0.38% consensus and September’s 0.44%.
  • Last Thursday’s hawkish remarks by the US Federal Reserve Chairman Jerome Powell sponsored the USD/MXN a leg up, toward 17.93, before paring some losses.
  • Mexico’s economy remains resilient after October’s S&P Global Manufacturing PMI improved to 52.1 from 49.8, and the Gross Domestic Product (GDP) expanded by 3.3% YoY in the third quarter.
  • Banxico revised its inflation projections from 3.50% to 3.87% for 2024, which remains above the central bank’s 3.00% target (plus or minus 1%).

Technical Analysis: Mexican Peso surges with USD/MXN sellers eyeing a break below the 100-day SMA

The USD/MXN pair bias has shifted to neutral downwards in the short term, and the pair is on the brink of breaking crucial support levels like the 100-day Simple Moving Average (SMA) at 17.33, followed by the psychological 17.00 figure. A breach of those demand areas could open the door to testing the year-to-date (YTD) low of 16.62, printed in July.

On the other hand, if buyers keep the exotic pair above 17.33 and reclaim 17.50 in the near term, they could remain hopeful of testing key resistance levels, like the 200-day SMA at 17.65, ahead of the 50-day SMA at 17.70. Once cleared, the next resistance emerges at the 20-day SMA at 17.87 before buyers could lift the spot price towards the 18.00 figure.

Mexican Peso FAQs

The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.

The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.

Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.

As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.

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