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Mexican Peso edges lower as US Dollar recovers ahead of US inflation data



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  • Mexican Peso slips modestly against the US Dollar, reflecting cautious sentiment before US CPI release.
  • US Dollar finds footing after last week’s drop, bolstered by adjustments in Treasury yields.
  • Industrial Production data looms for Mexico with forecasts pointing to a monthly decline alongside annual growth.

The Mexican Peso posts minimal losses against the US Dollar on Monday amid a risk-off impulse ahead of the release of the latest inflation report in the United States.  The Greenback is rebounding off last week’s losses, while US Treasury yields recovered some ground. The USD/MXN trades at 16.82, up 0.17%.

Mexico’s economic docket would feature Industrial Production on Tuesday, which is expected to drop -0.7% monthly and is estimated to grow by 2.2%. Across the border, the New York Fed revealed that inflation expectations for one year stood at 3% and for three years dropped from 2.7% to 2.4%.  On Tuesday, the US Bureau of Labor Statistics (BLS) is expected to reveal February’s Consumer Price Index (CPI).

Daily digest market movers: Mexican Peso buyers wait for US CPI; Fed rate cuts eyed in June

  • Last week, Federal Reserve Chair Jerome Powell reiterated the Fed is not ready to cut rates until they (the Fed) are convinced that inflation is cooling down toward the 2% target.
  • Data-wise, business activity in the sector segment in the US remained mixed, while Factory Orders plummeted. According to the ADP Employment Change report, the labor market cooled further, even though private hiring remained solid. January’s Nonfarm Payrolls report was revised downward, which triggered a reaction in the swaps market.
  • A Reuters poll showed investors estimate the Fed to be the first central bank to cut rates in June.
  • Meanwhile, 52 of 108 economists expect the Fed to cut rates by 75 basis points in 2024, with 26 saying 100 bps.
  • A Reuters poll sees the Mexican Peso depreciating 7% to 18.24 in 12 months from 16.96 on Monday, according to the median of 20 FX strategists polled between March 1-4. The forecast ranged from 15.50 to 19.00.
  • A Reuters poll shows 15 analysts estimate that inflation will slow down in February, corroborating bets that the Bank of Mexico (Banxico) could cut rates as soon as the March 21 meeting.
  • Banxico’s private analysts’ poll projections for February were revealed. They expect inflation at 4.10%, core CPI at 4.06%, and the economy to grow by 2.40%, unchanged from January. Regarding monetary policy, they see Banxico lowering rates to 9.50% and the USD/MXN exchange rate at 18.31, down from 18.50.
  • During Banxico’s quarterly report, policymakers acknowledged the progress on inflation and urged caution against premature interest rate cuts. Governor Victoria Rodriguez Ceja said adjustments would be gradual, while Deputy Governors Galia Borja and Jonathan Heath called for prudence. The latter specifically warned against the risks of an early rate cut.
  • Banxico updated its economic growth projections for 2024 from 3.0% to 2.8% YoY and maintained 1.5% for 2025. The slowdown is blamed on higher interest rates at 11.25%, which sparked a shift in three of the five governors of the Mexican Central Bank, who are eyeing the first rate cut at the March 21 meeting.
  • The CME FedWatch Tool shows traders increased their bets for a 25-basis-point rate cut in June to 72%.

Technical analysis: Mexican Peso stays almost flat as USD/MXN hovers around 16.80

The USD/MXN is downwardly biased, though it appears to have bottomed out near 17.80. The Relative Strength Index (RSI) has edged up, but downside risks remain. If sellers push the prices below the current year-to-date (YTD) low of 16.76, that could pave the way for challenging last year’s low of 16.62.

On the other hand, if buyers reclaim the 17.00 figure, that could open the door to testing the 50-day Simple Moving Average (SMA) at 17.05, followed by the 200-day SMA at 17.23 and the 100-SMA at 17.24.

USD/MXN Price Action – Daily Chart

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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