- The Mexican peso remains steady near the key 20.00 amid US Dollar’s strength ahead of the Fed decision.
- Strong US data has boosted speculation that the Fed will adopt a hawkish stance after cutting rates on Wednesday.
- From a wider perspective, USD/MXN is on a bearish trend but needs an extra boost to breach the 20.00 level.
The Mexican Peso (MXN) is trading back and forth on Tuesday, close to the key 20.00 level against the US Dollar (USD). Investors are reluctant to short the US Dollar ahead of key monetary policy decisions by the Federal Reserve (Fed) and the Bank of Mexico (Banxico) this week.
US preliminary S&P Global Purchasing Managers Index (PMI) data released on Monday revealed an unexpected improvement in services activity in December, and the market is bracing for a strong consumption reading for November later today.
These figures support the rhetoric of the US economic exceptionalism and bolster the case for very gradual Fed interest rate cuts next year. This sentiment keeps investors’ appetite for risk in check, boosting the US Treasury yields and buoying the US Dollar across the board.
Daily digest market movers: US Dollar remains steady ahead of the Fed meeting
- The US Dollar Index (DXY) trades higher on Tuesday, approaching multi-week highs amid higher US Treasury yields and market expectations of a “hawkish cut” by the Fed on Wednesday.
- US Treasury yields keep marching higher. The Benchmark 10-year yield has breached the 4.40% level in a 7-day rally after bouncing at 4.13% early last week.
- Mexican Retail Sales dropped 0.3% in October, against market expectations of a 0.2% increase, following a 0.1% uptick in September. The impact on the pair, however, has been muted.
- The US preliminary Services PMI jumped to 58.5 in December, its best performance in more than three years, from 56.1 in November, against expectations of a moderate slowdown to 55.7.
- US preliminary Manufacturing PMI contracted to 48.3 from 49.7 in November, but the composite data points to healthy economic growth in the last quarter of the year.
- Later today, US Retail Sales are expected to have increased by 0.5% in November, up from 0.4% in the previous month. Excluding autos, consumption is seen accelerating at a 0.4% pace from 0.1% in the previous month.
- The CME FedWatch tool shows a 25 bps interest rate cut by the Fed on Wednesday is almost fully priced in, and the market expects one or two more such cuts next year.
- The Bank of Mexico is expected to lower interest rates by 25 basis points on Thursday, to a 10.00% rate, amid growing concerns that the increasing tariffs in the US will hit the Mexican economy.
US Dollar PRICE Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.21% | -0.08% | -0.28% | 0.20% | 0.43% | 0.35% | 0.23% | |
| EUR | -0.21% | -0.28% | -0.50% | -0.01% | 0.22% | 0.14% | 0.03% | |
| GBP | 0.08% | 0.28% | -0.20% | 0.28% | 0.51% | 0.43% | 0.33% | |
| JPY | 0.28% | 0.50% | 0.20% | 0.48% | 0.72% | 0.62% | 0.54% | |
| CAD | -0.20% | 0.00% | -0.28% | -0.48% | 0.24% | 0.15% | 0.05% | |
| AUD | -0.43% | -0.22% | -0.51% | -0.72% | -0.24% | -0.08% | -0.20% | |
| NZD | -0.35% | -0.14% | -0.43% | -0.62% | -0.15% | 0.08% | -0.10% | |
| CHF | -0.23% | -0.03% | -0.33% | -0.54% | -0.05% | 0.20% | 0.10% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Mexican Peso technical outlook: USD/MXN has strong support at the 20.00 area
The USD/MXN is trading lower from its late November highs near 20.80, but the 20.00 psychological level keeps holding downside attempts. The pair has been consolidating between the mentioned 20.00 support and 20.30 for the last seven trading days.
The Mexican Peso would need an additional impulse to breach the 20.00 level against the US Dollar and shift its focus toward the October 24 and 25 and November 7 lows, at 19.75
On the upside, the USD/MXN needs to confirm above 20.30 before aiming for the December 2 high at 20.60 and November’s peak at around 20.80.
USD/MXN 4-Hour Chart
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
Source: https://www.fxstreet.com/news/mexican-peso-steadies-with-fed-and-banxico-decisions-on-tap-202412171128