- The Mexican Perso regains lost ground and approaches 20.00 as the US Dollar’s recovery loses steam.
- Soft Mecican CPI data has increased hopes of a 25 bps rate cut next week and is weighing on the MXN.
- Technically, USD/MXN’s double top at 20.80 suggests the possibility of a deeper correction.
The Mexican Peso (MXN) is practically flat in the daily chart as the US Dollar (USD) recovery lost steam ahead of Tuesday’s New York session opening. A somewhat sourer market sentiment has been supporting the safe-haven Greenback, while the MXN remains weighed by the weak Mexican inflation data seen on Monday.
The US Dollar drew some support with investors focusing on the US Consumer Prices Index (CPI) release, due on Wednesday. The market consensus hints toward a sticky inflation reading, which endorses the view of a shallow Federal Reserve’s (Fed) easing cycle in 2025.
In Mexico, the soft consumer inflation data has countered the hawkish comments from Banxico Deputy Governor Espinosa, boosting hopes that the bank will cut rates by 25 basis points again next week.
Daily digest market movers: Mexican Peso rally loses momentum
- The Mexican seasonally adjusted Consumer Confidence Index has deteriorated to 47.4 in November, from 49.4 in October. although the impact on the MXN has been muted,
- On Monday, Consumer Inflation eased to 4.55% in the last twelve months in Mexico, down from 4.76% in the previous month. The market was expecting a 4.59% reading.
- Likewise, the core CPI dropped to 3.58% year-on-year from 3.8%, below the market consensus of a 3.6% reading.
- These figures boost hopes that the Bank of Mexico will cut rates by 25 bps for the fourth consecutive time after their December 19 meeting.
- In the US, The main focus is Wednesday’s CPI data. Yearly inflation is expected to have ticked up to 2.7% in November, from 2.6% in October. The core CPI, more relevant from the monetary policy perspective, is seen steady at 3.3%.
- On Friday, US Nonfarm payrolls showed a 227,000 increase in November, beating expectations of a 200,000 rise. October’s data was revised to a 36,000 increment from the previously estimated 12,000 payrolls.
- The US Unemployment Rate, however, increased to 4.2% from 4.1% in October, which cemented hopes of a Federal Reserve (Fed) cut in December, and kept the US Dollar from rallying further.
- Futures markets are now pricing an 85% chance that the Fed will cut rates by 25 basis points in December, up from below 70% last week, according to data from the CME Group’s Fed Watch tool.
Mexican Peso technical outlook: USD/MXN recovery remains capped below 20.27
The USD/MXN has found support at the 20.00 support area to pare previous losses, although it remains capped below the December 6 high at 20.27 so far.
Technical indicators are mixed, with the 4-hour Relative Strength Index (RSI) still in bearish territory below the 50 level. From a broader perspective, the bearish trend remains intact, with the double top at 20.80 suggesting the possibility of a deeper correction.
Immediate resistance is at the mentioned December 6 high at 20.27, ahead of the December 2 high at 20.60 and November’s peak at 20.80. On the downside, the 20.00 psychological level is the neckline of the mentioned double top ahead of November’s low, at 19.75.
(This story was corrected on December 10 at 11:55 GMT to say, in the technical analysis section, that the December 6 high was at 20.27, not 2.27.)
USD/MXN 4-Hour Chart
Banxico FAQs
The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican Peso (MXN), and to set the monetary policy. To this end, its main objective is to maintain low and stable inflation within target levels – at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%.
The main tool of the Banxico to guide monetary policy is by setting interest rates. When inflation is above target, the bank will attempt to tame it by raising rates, making it more expensive for households and businesses to borrow money and thus cooling the 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. The rate differential with the USD, or how the Banxico is expected to set interest rates compared with the US Federal Reserve (Fed), is a key factor.
Banxico meets eight times a year, and its monetary policy is greatly influenced by decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee usually gathers a week after the Fed. In doing so, Banxico reacts and sometimes anticipates monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico did it first in an attempt to diminish the chances of a substantial depreciation of the Mexican Peso (MXN) and to prevent capital outflows that could destabilize the country.
Source: https://www.fxstreet.com/news/mexican-peso-dips-with-the-dollar-firming-up-ahead-of-us-cpi-data-202412101136