USD/MXN hovering around 20.50 ahead of Banxico’s decision

The USD/MXN is steady hovering around 20.50 ahead of the decision of the Bank of Mexico. The US dollar is mixed on Thursday after US data and Powell’s speech.

The Mexican peso is falling for the second day in a row versus the US dollar as it continues to move away from multi-month highs it reached on Monday. USD/MXN dropped to 20.00 and rebounded sharply. Earlier it rose to 20.63, hitting a five-day high.

Eyes on Banxico

In less than two hours, the Bank of Mexico will announce its decision on monetary policy. Most analysts expect a rate cut by 25 bps, and others see no change. Over the last three months, inflation rose above Banxico’s target, adding pressure to the central bank to slowdown in its easing cycle. At the same time, the economy needs more stimulus, and the recent appreciation of the Mexican peso offers positive arguments for more rate cuts.

“We expect Banxico to cut by 25bps and signal a hold on rates for an indefinite period of time. While it appears that the momentum of the Covid-19 price shock is ebbing, and inflation expectations remain relatively stable, our inflation forecasts suggest that prices will not top out until Q2 2021. This suggests conservatism for Banxico going forward in order to preserve credibility and maintain yield-support for MXN”, explained analysts at TD Securities.

At BBVA, economists think the Bank of Mexico will keep making rate cut in 25bp steps from here until the policy rate reaches 3.0%, in May 2021. “We continue to expect that Banxico will slash rates further than currently expected, as Banxico keeps them close to 0% in real terms.”

Technical levels