Mexican Peso rally pauses ahead of US inflation report
- Mexican Peso eases as traders book profits after weak NFP shock.
- US CPI and jobless claims could reshape Fed hike expectations.
- Banxico hold bets remain firm as Mexico inflation approaches target.
The Mexican Peso (MXN) loses some ground against the US Dollar (USD) on Monday as traders book profits after a worse-than-expected US jobs report last week and as eyes turn to the release of US inflation figures on Wednesday. At the time of writing, the USD/MXN pair trades at 17.14, modestly up 0.05%.
USD/MXN steadies as traders take profits, with US inflation data, Fed expectations driving the markets
Last week, the Greenback was pressured by intervention in the FX markets by US and Japanese authorities aimed at strengthening the Japanese Yen. However, the move is fading as the US Dollar Index (DXY) posts gains of over 0.20%.
The DXY, which tracks the performance of the buck against six currencies, sits at 99.80, after refreshing two-month lows at 99.40.
July’s Nonfarm Payrolls were worse than expected, with the economy slashing jobs, but the Unemployment Rate ticked lower from 4.2% to 4.1%. Although this is just one reading, traders would also watch the release of Initial Jobless Claims on Thursday for possible cracks in the labor market.
Aside from this, the highlight of the week is the release of US inflation figures on the consumer and producer side. If prices align with estimates, this would indicate a resumption of the disinflation process, barring any rate hikes by the Federal Reserve.
Across the southern border, Mexico´s inflation edged towards the Bank of Mexico (Banxico) goal of 3% plus or minus 1%, as revealed by the National Statistics Agency (INEGI). This is a relief for Banxico, which unanimously held rates unchanged on August 6, though it hinted that the balance of risks to inflation was tilted to the upside.
According to the Citi Mexico expectations survey, all the analysts expect Banxico’s main policy interest rate to remain unchanged at 6.50% towards the end of the year. At the same time, the median estimate is that the USD/MXN exchange rate would end this year at 17.90.
USD/MXN Price Forecast: Technical outlook
In the daily chart, USD/MXN trades at 17.1441, maintaining a bearish near-term bias as spot holds below the clustered simple moving averages around 17.40 and the descending resistance trend line projected from the 18.16 area near 17.44. The pair is trading under these key overlays, suggesting rallies remain capped, while the Relative Strength Index (14) near 33 points to weak but not yet oversold downside momentum that could allow further softening before a more meaningful bounce.
On the topside, initial resistance is seen at the grouped simple moving averages around 17.40, followed by the descending trend-line barrier near 17.44, where sellers are likely to re-emerge if the pair attempts a corrective rebound. On the downside, structural support is aligned with the longer-term trend-line break level near 15.66, leaving the intermediate space largely uncharted and implying that any renewed selling pressure could accelerate should intraday bounces fail to regain the 17.40–17.44 cap.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.
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.
