Most recent article: Mexican Peso surges for ninth day, hits five-week high against USD
The Mexican Peso trades mixed in key pairs after the release of the Banxico June meeting Minutes.
The Peso is higher against the US Dollar but is down versus the Pound Sterling.
USD/MXN is falling to a target at the end of the wave C of a Measured Move pattern.
The Mexican Peso (MXN) trades mixed in its major pairs on Friday as markets digest recent market-moving data. MXN is up against the US Dollar (USD) and the Euro (EUR) but marginally down against the Pound Sterling (GBP), which gained support after the release of solid UK Gross Domestic Product (GDP) data on Thursday.
MXN rises against the USD despite the release of higher-than-expected factory-gate inflation data in the form of the Producer Price Index (PPI) for June. To an extent the PPI release balanced out a surprise drop in the US Consumer Price Index (CPI) for June, released Thursday.
The Peso is additionally impacted by the release of the Minutes of the Bank of Mexico (Banxico) June meeting.
At the time of writing, one US Dollar (USD) buys 17.70 Mexican Pesos, EUR/MXN trades at 19.28, and GBP/MXN at 22.95.
Mexican Peso remains supported despite rate-cut dissenter
The Mexican Peso trades variably in its key pairs on Friday as markets digest the release of the Minutes of the Banxico June policy meeting.
The Peso is holding up despite a change in the distribution of voting at the meeting that suggests interest-rate cuts are on their way.
The Minutes showed that one dissenter (Banxico Deputy Governor Omar Mejía) voted for an interest rate cut of 0.25%, compared to no one voting for a cut at the previous May meeting.
The ten key takeaways from the Minutes are as follows:
The majority of members agreed that Mexico’s economic activity continued to exhibit the weakness observed since the end of 2023.
Looking ahead, the balance of risks for the economy were biased to the downside.
Most members indicated that “private consumption has remained strong in Mexico.”
One member made the point that “there is the risk that private investment will continue losing dynamism, considering the tight financial conditions and the environment of greater uncertainty generated by financial volatility in Mexico, as well as by the upcoming electoral process in the United States.”
All members noted the employment market continued to be strong but added it had also “shown some signs of moderation,” which compared to more unequivocal phrasing from the May Minutes.
The June Minutes stated that headline inflation rose due to non-core effects whilst core inflation had continued to fall – the same as in May.
There was less emphasis on the impact of high services sector inflation, although, “Some members mentioned that services inflation remains above 5%. One member pointed out that it registered 5.19% in the first fortnight of June.”
That said, the Minutes stated that the balance of risks to the inflationary outlook remained to the upside, and “Most members highlighted as an upward risk the persistence of core inflation, especially of its services component.”
The inflationary impact of the recent depreciation of the Peso had been offset by lower economic activity.
Most members expect headline inflation will converge with Banxico’s 3.0% target in Q4 2025.
Technical Analysis: USD/MXN continues steady decline
USD/MXN continues declining in what is likely the wave C of a falling Measured Move pattern that has formed since the June 12 high.
USD/MXN Daily Chart
Measured Moves (MM) are large, three-wave zig-zags in which the end of wave C can be estimated with some degree of reliability using the length of wave A as a guide. C is usually equals A or, at least, a Fibonacci ratio of A.
USD/MXN has already reached the conservative target for wave C, calculated as the 0.618 Fibonacci ratio of the length of wave A. Given that the pair has reached this lesser target, there is a risk it may reverse and start recovering.
A break below 17.70 (July 12 low), however, would reinvigorate bears and probably lead to a move down to the target at the end of wave C, at roughly the level of the 50-day Simple Moving Average (SMA) situated at 17.60.
Meanwhile, the direction of the medium and long-term trends remain in doubt.
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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