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Mexican Peso appreciates, finishes week higher ahead of Central Bank meetings

  • Mexican Peso appreciates 0.50% against the Dollar following a week of mixed US data, bolstering Fed rate cut odds.
  • Light economic docket sees US Import Prices rise slightly, while Export Prices decline in November.
  • Upcoming decisions by the Fed and Banxico next week could further influence USD/MXN.

The Mexican Peso recovered after registering losses on Thursday and appreciated some 0.50% against the Greenback during the North American session. Mixed economic data from the US released in the week augmented bets that the Federal Reserve ( Fed) will cut interest rates next week. The USD/MXN trades at 20.11, down after hitting a high of 20.26.

The economic docket in Mexico and the US is light on Friday. US Import and Export Prices were featured, with the former posting a minimal rise while the latter fell in November.

During the week, Mexico’s economic data revealed that inflation dipped below estimates in headline and underlying prices in November. This cemented the case for another rate cut by the Bank of Mexico (Banxico), which will host its last meeting on December 19.

Additional data showed that Consumer Confidence in November deteriorated, sliding from 49.5 to 47.7. Industrial Production for the same period, reported on December 12, highlighted the ongoing economic slowdown, printing negative figures in monthly and annual data.

Despite this, the USD/MXN extended its losses, even though the US Dollar Index (DXY) tracks the buck's performance against six currencies, registered daily gains for six consecutive days, and clings to 107.00.

The Peso has been pressured by harsh rhetoric by US President-elect Donald Trump, who threatened to impose 25% tariffs on Mexican imports if the government doesn’t help with illegal immigration and fight the drug cartels.

Nevertheless, the USD/MXN continued to drop, favoring the Mexican currency, as the interest rate differential was maintained.

Next week, the Fed and Banxico are expected to lower borrowing costs. Barring any surprises, the USD/MXN could extend its downtrend toward 20.00 ahead of the year’s end.

Daily digest market movers: Mexican Peso boosted by Fed’s rate cut speculation

  • US Import Prices in November edged up by 0.1% MoM, matching October's reading and surpassing expectations of a -0.2% decline.
  • Export Prices for November remained flat at 0% MoM, down from 1% in October but beating forecasts of a -0.2% drop.
  • Banxico is expected to lower its primary reference rate from 10.25% to 10.00% (25 basis points) at the December 19 meeting, according to the swaps market.
  • Banxico’s Governor, Victoria Rodriguez Ceja, remains dovish. In her last interview with Reuters, she said that given the progress of disinflation, the central bank could continue lowering borrowing costs.
  • Analysts at JPMorgan hinted that Banxico could lower rates by 50 basis points as inflation data shows that prices are edging lower faster than expected.
  • Traders' focus shifted to the Fed’s monetary policy meeting on December 17-18, with traders predicting a 93% chance of a 25 bps rate cut via data from the Chicago Board of Trade.
  • Following the decision, investors will eye Fed Chair Jerome Powell's press conference, looking for clues regarding the policy path for 2025.

USD/MXN technical outlook: Mexican Peso recovers as USD/MXN drops toward 20.10

The USD/MXN would finish the week consolidated at around the 20.00-20.25 area for five straight days, unable to clear the top or the bottom of the range, with buyers and sellers finding acceptance within that area.

However, momentum shifted slightly bearishly, as portrayed by the Relative Strength Index (RSI). The USD/MXN is tilted to the downside in the near term.

The USD/MXN's first support would be the 50-day Simple Moving Average (SMA) at 20.07, which has remained almost flat since December 6. Should the pair drop below, it could test 20.00, with further declines seen toward the 100-day SMA at 19.70.

On the upside, if USD/MXN climbs past 20.25, immediate resistance would be 20.50. A breach of the latter will expose the December 2 daily high of 20.59, followed by the year-to-date (YTD) peak of 20.82, followed by the 21.00 mark.

Economic Indicator

Central Bank Interest Rate

The Bank of Mexico announces a key interest rate which affects the whole range of interest rates set by commercial banks, building societies and other institutions for their own savers and borrowers.  Generally speaking, if the central bank is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the Mexican Peso.

Read more.

Next release: Thu Dec 19, 2024 19:00

Frequency: Irregular

Consensus: -

Previous: 10.25%

Source: Banxico

Author

Christian Borjon Valencia

Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.

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