Mexican Peso rides high against US Dollar, capitalizing on cautious Fed minutes, risk-on mood
- Mexican Peso enjoys a nearly 3% gain over the last four trading days on risk-appetite improvement.
- USD/MXN traders to remain on their toes, following September’s US PPI data, eye CPI numbers.
- Boston Fed President Susan Collins adopted a tilted hawkish stance.
Mexican Peso (MXN) finished Wednesday’s session with gains versus the US Dollar (USD) as the latest minutes of September’s Federal Reserve (Fed) monetary policy meeting showed the central bank of the United States (US) is adopting a more cautious approach as the risk of achieving its mandate shifted double sided. The USD/MXN is trading at 17.81, achieving losses of 0.54%.
A risk-on impulse, as portrayed by Wall Street registering modest gains, bolstered the emerging market currency, which has gained, for the last trading days, close to 3%. Data from the US showed factory inflation rose, while traders await Thursday’s Consumer Price Index (CPI) for September, which is expected to show prices continue to ease. On the Mexican front, Industrial Production is projected to slow down.
At the time of writing, Boston Fed President Susan Collins adopted a slightly hawkish stance, saying that another rate hike could be warranted, depending on upcoming data.
Daily Digest Market Movers: Mexican Peso posts solid gains, and hovers around 17.81 on Fed’s prudence, upbeat mood
- Mexican Peso remains bolstered by a risk-on impulse despite the ongoing escalation of the Israel-Hamas conflict.
- The September US Producer Price Index (PPI) rose by 0.5% MoM, above estimates of 0.3%, while core PPI expanded by 0.3%, exceeding forecasts of 0.2%.
- Annually based, the PPI rose by 2.2%, above forecasts and August’s figures, of 1.6% and 2%, while the core PPI rate stood at 2.7%, exceeding projections and the prior month’s data.
- Fed Governor Michelle Bowman: As inflation remains above the FOMC’s target, “This suggests that the policy rate may need to rise further and stay restrictive for some time to return inflation to the FOMC's goal.”
- Mexico’s Consumer Price Index (CPI) grew by 4.45% YoY in September, below the 4.47% of estimates.
- The core CPI inflation in Mexico stood stickier at 5.76% YoY, as widely estimated, but has broken below the 6% threshold.
- The Bank of Mexico (Banxico) held rates at 11.25% in September and revised its inflation projections from 3.5% to 3.87% for 2024, above the central bank’s 3% target (plus or minus 1%).
Technical Analysis: Mexican Peso challenges last Wednesday’s lows of 17.82
Mexican Peso appreciated during the week as the USD/MXN has dived more than 3%, below the 18.00 figure, with sellers targeting the 200-day Simple Moving Average (SMA) at 17.77. A breach of the latter will expose the 20-day SMA at 17.57 before challenging the low seen on September 30 at 17.34. If USD/MXN sellers break that level, the pair will shift to a neutral-downward bias. On the flip side, buyers must reclaim the 18.00 figure for a bullish continuation.
Banxico FAQs
What is the Bank of Mexico?
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%.
How does the Bank of Mexico’s monetary policy influence the Mexican Peso?
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.
How often does the Bank of Mexico meet during the year?
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.
Author
Christian Borjon Valencia
FXStreet
Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.
