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Mexican Peso (MXN) trims recent losses against the US Dollar (USD) after a weak start.
Mexico’s Unemployment Rate for September aligns with estimates, dipping to 2.9% from August’s 3%.
Banxico’s Deputy Governor Jonathan Heath highlights concerns over the desynchronization between monetary and fiscal policy in 2024.
Mexican Peso (MXN) surges vs. the US Dollar (USD) on Thursday, erasing Wednesday’s losses after economic data from Mexico showed the labor market remains hot, portraying a resilient economy. Across the border, the United States (US) economy reported its fastest GDP growth rate in almost two years during the third quarter, a bad sign for inflation, which could justify the US Federal Reserve (Fed) need for further tightening. The USD/MXN is trading at 18.22, down 0.50% on the day.
Mexico revealed the Unemployment Rate for September dipped compared to August’s 3% figure, and data was aligned with estimates of 2.9%, informed the National Statistics Agency, INEGI. Aside from economic data, the Bank of Mexico (Banxico) Deputy Governor Jonathan Heath said the desynchronization between monetary and fiscal policy due to the government’s increasing debt in 2024 will add “noise” to the inflationary fight.
On the US front, Q3 GDP grew above expectations, while Durable Goods Orders for September more than tripled forecasts. On the other hand, Initial Jobless Claims rose above estimates, suggesting the labor market is easing.
Daily Digest Market Movers: Mexican Peso comes back to life as the USD/MXN drops below 18.25
Mexico’s September Unemployment Rate was 2.9%, aligned with estimates, but below August’s 3%.
US Q3 GDP grows at an annualized rate of 4.9%, higher than the 4.2% consensus.
Durable Goods Orders for September in the US rose 4.7% MoM, crushing forecasts of 1.5%, well above August’s 0.1% plunge.
US Initial Jobless Claims for the week ending October 21 rose to 210K, exceeding estimates and prior week data of 208K and 200K, respectively.
On October 24, Mexico’s National Statistics Agency INEGI reported annual headline inflation hit 4.27%, down from 4.45% at the end of September, below forecasts of 4.38%.
Mexico’s core inflation rate YoY was 5.54%, beneath forecasts of 5.6%.
Earlier this week, S&P Global Manufacturing PMIs evidenced expansion in US manufacturing and service sectors during October.
On Friday, the US will release September’s Core PCE Price Index – Federal Reserve’s preferred gauge of inflation – which could affect monetary policy expectations.
The Bank of Mexico (Banxico) held rates at 11.25% in September and revised its inflation projections from 3.50% to 3.87% for 2024, above the central bank’s 3.00% target (plus or minus 1%).
Technical Analysis: Mexican Peso at the brink of further depreciation if USD/MXN climbs above 18.50
The USD/MXN upward bias remains intact, though Thursday’s price action led to a daily high of 18.42 but the pair failed to break last week’s high at 18.46, exacerbating the ongoing pullback to current exchange rates. If sellers want to re-test the psychological 18.00 figure, they must reclaim the 20-day Simple Moving Average (SMA) at 18.06. On the other hand, if the pair finds support at around 18.20, that could keep buyers hopeful of challenging October’s high 18.48, ahead of 18.50.
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.
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