USD/MXN climbs as investors brace for the Fed’s decision and eye Mexican inflation

• USD/MXN trades at 17.1182, rebounding from a daily low of 17.0296, as markets anticipate key central bank decisions this week.
• US Federal Reserve expected to hold rates steady, but last week’s uptick in inflation keeps options open; traders await updated ‘dot-plots.’
• Mexican Private Consumption slows to 4.3% YoY in Q2 2023, while upcoming data could show a decline in Retail Sales and a slowdown in inflation.

The Mexican Peso (MXN) loses ground versus the Greenback (USD) on Monday, ahead of a busy week in the central bank space, as three of the most important are set to deliver their decisions. At the time of writing, the USD/MXN is trading at 17.1182 after printing a daily low of 17.0296.

Mexican Peso weakens against the US Dollar ahead of a pivotal week for central banks, with focus on the Fed’s ‘dot-plots’ and inflation data

Investors’ mood depreciated the Mexican currency as the US Federal Reserve (Fed) is expected to deliver its decision on Wednesday, at around 18:00 GMT, followed by Jerome Powell’s press conference. According to data, the swaps market sees the Fed holding rates unchanged, at 5.25%-5.50%, thought would likely keep their options open due to last week’s inflation uptick. USD/MXN traders would look at the update of the so-called ‘dot-plots.’

The US economy witnessed a slight jump in consumer and producer price indices. As fewer Americans filed for unemployment benefits, the jobs market remains hot. That was depicted by Retail Sales, which expanded at a slower rate, while consumer sentiment deteriorated, blamed on high gasoline prices. Notably, inflation expectations were pushed lower, as revealed by the University of Michigan.

On the Mexican front, Private Consumption in Mexico grew by 4.3% YoY in Q2 2023, below the previous reading of  4.8%, according to figures revealed by the Instituto Nacional de Estadistica Geografia e Informatica (INEGI).

Sentiment amongst investors improved as Chinese data witnessed the economy has found its bottom after the Government’s efforts to stimulate the economy, which faltered to recover as expected by most financial market analysts.

In the week ahead, the US economic docket will feature housing data, \the Fed’s decision, jobs data, and S&P Global PMIs. Retail Sales are expected to deteriorate on the Mexican front, while inflation for the first half of September is foreseen to slow down.

USD/MXN Price Analysis: Technical outlook

The pair found its foot at around 17.0297 before testing the 50-day Moving Average (DMA), which has risen above the 20-DMA at 17.0992, exacerbating a test of the 100-DMA at 17.2188. A breach of the latter will expose the 17.50 area, followed by the September 7 swing high at 17.7074. ahead of challenging the 18.0000 psychological level. Conversely, if the pair slides toward the 20-DMA, it could pave the way for a crack under 17.0000. The next support will emerge at August’s 28 daily low of 16.6923.