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- The Mexican peso fell sharply with USD/MXN again trading above the 18.00 level, up more than 1%.
- Fed Governor Michael Bowman’s comments on keeping interest rates steady and the desire to raise interest rates are weighing on the peso.
- Banxico’s next monetary policy decision is on Thursday, with most economists expecting interest rates to remain unchanged at 11.00%.
The Mexican peso fell sharply against the US dollar Federal Reserve Fed Governor Michelle Bowman was hawkish compared to San Francisco Fed President Mary Daly, who was concerned about the labor market, stressing that the risks of the dual mandate are balanced. However, USD/MXN is trading at 18.15, up more than 1%.
The peso came under pressure after Bowman reiterated that interest rates would remain steady “for some time,” adding that there had been “modest additional progress in US inflation” and that she was ready to raise interest rates. Rates If inflation stops.
San Francisco Fed President Mary Daly stressed that the Fed should “pay attention” as it aims to finish the job of lowering inflation, adding that this is “not the only risk we face.”
Mexico’s economic calendar showed inflation data for mid-June on Monday, ahead of the Bank of Mexico’s (Banxico) monetary policy decision on Thursday. The Citibanamex poll showed that most economists expect interest rates to remain unchanged at 11.00%, but they expect the central bank to cut rates until August.
Daily summary of market drivers: The Mexican peso falls despite rising inflation, ensuring Banxico’s interest rate stays in place
- Consumer prices in mid-June in Mexico rose above estimates, which should prevent Banxico from easing policy on June 27.
- Headline inflation jumped from 4.70% expected to 4.78% y/y, despite core prices falling from 4.31% to 4.17% y/y.
- The Citibanamex survey showed that economists expected fewer interest rate cuts by the central bank, with estimated interest rates set to be cut to 10.25% in 2024, up from 10.00%. Regarding the USD/MXN pair, consensus estimates suggest that the exchange rate will end the year at 18.70, up from 18.00 in the previous report.
- Regarding economic growth, the consensus revised GDP for 2024 down from 2.2% to 2.1% on an annual basis.
- Banxico’s verbal intervention last week supported the Mexican peso as the USD/MXN pair hit an 11-day low. However, the Fed’s hawkish comments weighed on the emerging market currency.
- The CME FedWatch tool shows the odds of a 25 basis point Fed rate cut at 59.5%, down from 61.1% last Monday.
Technical Analysis: Mexican Peso Down as USD/MXN Rises Above 18.00
USD/MXN’s uptrend remains intact after yesterday’s pullback below 17.90, which triggered an alarm that sellers are back in control. However, momentum remains in favor of the buyers, who moved in and reclaimed the 18.00 area and targeted the year-to-date high.
If USD/MXN breaks above 18.50, the next resistance will be the YTD high at 18.99. A break above this will expose the high recorded on March 20, 2023 at 19.23, followed by a slight rise to 19.50.
On the flip side, if USD/MXN falls below 18.00, the next major support level will be the 50-day simple moving average (SMA) at 17.37 before a test of the 200-day SMA at 17.23. Once these two levels are crossed, the next stop will be at the 100-day simple moving average at 17.06.
Frequently asked questions about the Mexican Peso
The Mexican Peso (MXN) is the most widely traded currency among its counterparts in Latin America. Its value is widely determined by the performance of the Mexican economy, the policy of the country’s central bank, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans living abroad, especially in the United States. Geopolitical trends can also move the Mexican peso: for example, offshoring – or the decision by some companies to move manufacturing capacity and supply chains closer to their home countries – is seen as a catalyst for the Mexican currency as the country is a major manufacturing hub in the Americas. . Another catalyst for the Mexican peso is oil prices as Mexico is a major exporter of this commodity.
The main goal of the Mexican Central Bank, also known as Banxico, is to keep inflation at low and stable levels (at or near its 3% target, the midpoint of the 2% to 4% tolerance range). To this end, the Bank sets an appropriate level of interest rates. When inflation is too high, Banxico will try to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the economy as a whole. Higher interest rates are generally a positive for the Mexican Peso (MXN) because they lead to higher returns, making the country a more attractive place for investors. Conversely, low interest rates tend to weaken the Mexican peso.
Macroeconomic data releases are key to assessing the state of the economy and can have an impact on the valuation of the Mexican Peso (MXN). A strong Mexican economy, based on high economic growth, low unemployment, and high confidence, is good for the Mexican peso. Not only does it attract more foreign investment, it may encourage the Bank of Mexico (Banxico) to increase interest rates, especially if this force is accompanied by higher inflation. However, if economic data is weak, the value of the Mexican peso is likely to decline.
As an emerging market currency, the Mexican peso tends to do its best work during periods of risk, or when investors view broader market risk as low and are therefore keen to take on higher-risk investments. Conversely, the Mexican peso tends to weaken in times of market turmoil or economic uncertainty as investors tend to sell high-risk assets and flee to more stable safe havens.
