USD/MXN extends rebound and rises to test 19.20

The USD/MXN bottomed on Thursday at 18.88, the lowest level in months but that same day started a reversal. It climbed back to 19.00 and on Friday on top of 19.10. Today it is testing the 19.20 key short-term resistance area. 

The decline was triggered by a global sell-off of the US Dollar. When the greenback offered the first signals of stabilization, USD/MXN reversed dramatically. The economic outlook in Mexico and the decline seen in crude oil prices are weighing on the Mexican peso. 

Mexico: inflation eased, but not the core as Banxico meeting approaches 

Data released today showed that the Consumer Price Index during the first half of June changed marginally, up 0.01% while the core rose 0.16%. The annual rate dropped to 4.0% from 4.28%, but the core rose from 3.77% to 3.87%. 

The critical event of the week will be the Bank of Mexico Board meeting. After the recovery of the Mexican peso and the shift in the Fed’s policy bias, Banxico could follow, considering that the economy contracted during the first quarter and rates are at 8.25%, the highest in a decade.  “Interest-rate sensitive sectors have been particularly weak, including gross fixed investment spending, which fell 2.4% from a year earlier in March. The central bank is widely expected to shift to an easing bias in the not-too-distant future, but has thus far continued to convey a hawkish message in recent policy announcements. However, now that U.S. tariffs on Mexico are no longer an immediate threat and the peso has stabilized, the central bank may feel more comfortable backing away from its hawkish stance and slowly starting to signal rate cuts”, said Wells Fargo analysts.