Most recent article: Mexican Peso declines in the aftermath of Fed and Banxico’s meetings minutes
- Mexican Peso recovered some ground amid Fed’s latest minutes were not dovish as traders expected.
- Mexico's Manufacturing PMI dips to 52.0, exerting pressure on the Peso amid positive business confidence data.
- USD/MXN recovers to over 17.00 after a dip, fueled by a rise in the US Dollar
The Mexican Peso (MXN) began the year on a lower note against the US Dollar (USD) after the exotic pair dipped to a three-month low on December 28 at 16.86. Even though US Treasury bond yields shifted negatively, the Greenback (USD) remains higher, consequently underpinning the USD/MXN pair. At the time of writing, the exotic pair trades in the 17.03 area, posting a minuscule gain of 0.03%.
The minutes indicate that most Federal Reserve officials believe interest rates are approaching or have reached their peak. However, they noted uncertainty regarding the duration for which the restrictive policy should be sustained. Despite observing some improvements in inflation, they acknowledged that core services prices remain high. It was also mentioned that some officials might favor maintaining the current interest rates longer than initially expected.
On Tuesday, Mexico’s economic docket featured the S&P Global Manufacturing PMI for December, which printed 52.0, below November’s 52.5, and weighed on the Mexican currency. During the day, business confidence improved while USD/MXN traders digested economic data from the United States (US) revealed at around 15:00 GMT. However, market players await the release of the latest Federal Reserve’s (Fed) meeting minutes.
Daily digest market movers: Mexican Peso losses steam on positive US data
- Business Confidence in Mexico improved from 54 in November to 54.6, though it failed to underpin the Mexican Peso, which remained weak during the session.
- Commentary from Richmond Federal Reserve (Fed) President Thomas Barkin supported the US Dollar after he stated the US central bank is making real progress in taming inflation. He added that although the economy is headed for a soft landing, risks remain, adding that the potential for additional rate hikes is on the table.
- US economic docket revealed the ISM Manufacturing PMI came in at 47.4, exceeding expectations of 47.1, while the prior reading was 46.7.
- At the same time, the November Job Openings and Labor Turnover Survey (JOLTS) report rose less than estimates of 8.85 million to 8.79 million, while October’s figures were upwardly revised to 8.852 million.
- Later, December’s Federal Open Market Committee (FOMC) minutes will be scrutinized by traders, following Federal Reserve Chairman Jerome Powell’s dovish pivot that fueled a stock rally towards the end of 2023. Fed officials estimate three rate cuts toward the end of December 2024, as depicted by the Summary of Economic Projections (SEP).
- Money market futures data provided by the Chicago Board of Trade (CBOT) shows that traders remain confident the Fed would slash rates by 150 basis points towards the year’s end.
Technical analysis: Mexican Peso stays bearish despite USD/MXN buyers' effort
From a technical perspective, the USD/MXN remains bearishly biased, though sellers need a daily close below the November 27 low of 17.03 to increase their chances of pushing the price back below the 17.00 figure. Once achieved, that could pave the way to test the waters at around 16.86, ahead of falling toward last year’s low of 16.62.
On the flip side, if USD/MXN stays above the 17.00 figure, that could pave the way for a move toward the 17.37-17.43 area, the confluence of the 50, 100, and 200-day Simple Moving Averages (SMAs). If that area is surpassed, expect the USD/MXN to reach the psychological 17.50 area, ahead of the November 10 high at 17.93.
Also read: Mexican Peso Price Annual Forecast: Which factor would impact most in 2024, economics or politics?
USD/MXN Daily Chart
Central banks FAQs
What does a central bank do?
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
What does a central bank do when inflation undershoots or overshoots its projected target?
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
Who decides on monetary policy and interest rates?
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Is there a president or head of a central bank?
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD turns negative near 1.0760
The sudden bout of strength in the Greenback sponsored the resurgence of the selling pressure in the risk complex, dragging EUR/USD to the area of daily lows near 1.0760.
GBP/USD comes under pressure and challenges 1.2500
GBP/USD now rapidly loses momentum and gives away initial gains, returning to the 1.2500 region on the back of the strong comeback of the US Dollar.
Gold retreats from highs on stronger Dollar, yields
XAU/USD trims part of its initial advance in response to the jump in the Dollar's buying interest and the re-emergence of the upside pressure in US yields.
XRP tests support at $0.50 as Ripple joins alliance to work on blockchain recovery
XRP trades around $0.5174 early on Friday, wiping out gains from earlier in the week, as Ripple announced it has joined an alliance to support digital asset recovery alongside Hedera and the Algorand Foundation.
Week ahead – US inflation numbers to shake Fed rate cut bets
Fed rate-cut speculators rest hopes on US inflation data. After dovish BoE, pound traders turn to UK job numbers. Will a strong labor market convince the RBA to hike? More Chinese data on tap amid signs of slow Q2 start.