Mexican Peso treads water despite shrugging off geopolitical tensions
- Mexican Peso threatens to print a daily close below the 18.00 mark.
- Mexico's economy shows resilience as Gross Domestic Product expands for the eighth quarter.
- USD/MXN continues to exchange hands above the crucial 18.00 level, with geopolitical risks and month-end flows impacting the pair.
Mexican Peso (MXN) maintains its gains against the US Dollar (USD) in the late North American session, even as the USD/MXN exchange rate rises above 18.00 due to month-end flows. This movement comes despite positive economic data from Mexico and ongoing geopolitical risks. Despite the situation in Israel, improved risk appetite drives price action, and the USD/MXN is currently trading around the 18.00 level. This level is significant as market participants prepare for the upcoming US Federal Reserve (Fed) monetary policy meeting.
Mexico's National Statistics Agency (INEGI) has reported that the country's economy grew more than expected in the most recent quarter, extending a solid growth trend for eight consecutive quarters. However, the annual growth rate has slowed compared to the previous quarter's reading. This suggests that while Mexico's economy continues to perform well, there may be some moderation in the pace of growth. Jason Tuvey, deputy chief emerging markets economist at Capital Economics, said a “slowdown is on the cards,” adding that restrictive monetary policy takes a heavier toll, and weaker growth in the US weighs on Mexico’s external sector.
Meanwhile, the finance minister's office in Mexico expressed that it’s too soon to assess the overall economic impact of Hurricane Otis.
In the meantime, Israel continues its ground offensive in Gaza. In addition to Middle East conflict, the Fed begins its two-day monetary policy meeting, in which officials are expected to keep rates unchanged at the 5.25% - 5.50% range, justifying that long-term bond yields remain higher. Besides that, traders would look for clues as Fed Chairman Jerome Powell would take the stand at around 18:30 GMT.
Daily digest movers: Mexican Peso hovers around 18.00, despite solid economic growth, awaits Fed's decision
- Mexico’s Gross Domestic Product grew by 0.9% QoQ in the third quarter on its preliminary reading, above the previous quarter and estimates of 0.8%.
- On a yearly basis, Mexico’s GDP for Q3 expanded 3.3%, above forecasts of 3.2%, but trailed the previous 3.6%.
- First estimates of Hurricane Otis damages stand at around $10 to 15 billion dollars, according to Enki Research, a firm specializing in natural disasters.
- Mexican authorities reported that around 270,000 houses in Acapulco were affected or destroyed, while 80% of hotels were severely damaged.
- The latest release of US economic data shows the economy remains resilient due to the strong jobs market and the preliminary release of Q3 GDP figures. USD/MXN traders should be aware of further economic data that could underpin or weigh on the Greenback.
- The US Dollar Index, which tracks the performance of the Greenback against six currencies, slides 0.40%, down at 106.15.
- Mexico’s economic docket will feature the release of , S&P Global Manufacturing PMIs, Foreign Exchange Reserves, and Gross Fixed Investment.
- The US agenda will feature the Fed’s decision, Fed Powell’s press conference, Nonfarm Payrolls employment data, and S&P Global and ISM Manufacturing PMIs.
- On October 24, Mexico's National Statistics Agency INEGI reported annual headline inflation hit 4.27%, down from 4.45% at the end of September, below forecasts of 4.38%.
- Mexico’s core inflation rate YoY was 5.54%, beneath forecasts of 5.60%.
- The Bank of Mexico (Banxico) held rates at 11.25% in September and revised its inflation projections from 3.50% to 3.87% for 2024, above the central bank’s 3.00% target (plus or minus 1%). Next decision will be announced on November 9.
Technical Analysis: Mexican Peso buyers target the 200-day Simple Moving Average
The USD/MXN uptrend remains intact despite Friday’s dip below the 18.00 figure, which puts the 20-day Simple Moving Average (SMA) at 18.10 at risk of being decisively broken to the downside. A daily close below the latter would keep sellers hopeful of driving price action towards the 200-day SMA at 17.72. A breach of the last and the subsequent support would be the 50-day SMA at 17.58. On the flip side, if the exotic pair remains above the 20-day SMA, the next resistance will emerge at the October 26 high at 18.42 before challenging last week’s high at 18.46, ahead of the 18.50 figure.
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.
