USD/MXN trades at around 18.1000 despite US Dollar weakness, ahead of Banxico’s decision

• USD/MXN remains depressed, falling 3.54% weekly due to the Mexican Peso’s strength.
• The rise in US unemployment claims cement the case for a Federal Reserve’s pause as the labor market cools.
• The Bank of Mexico is expected to raise rates by 25 bps, and then a pause is foreseen.

In the North American session, the USD/MXN is almost flat on Thursday after the Mexican Peso (MXN) failed to push through the 18.00 figure. However, the Mexican currency prints gains vs. the US Dollar (USD) of 3.54% amidst ongoing optimism amongst investors that the US Federal Reserve will end its tightening cycle. The USD/MXN is trading at 18.0860.

USD/MXN is almost flat, with traders awaiting Banxico’s move

Sentiment remains upbeat as Wall Street trades in the green. The greenback continues to weaken to fresh weekly lows, as shown by the US Dollar Index (DXY), but MXN bulls stay on the sidelines, awaiting Banxico’s decision.

Data from the United States (US), amongst other reasons, keep the US Dollar pressured. Initial Jobless Claims for the week ending March 25 jumped by 198,000, higher than the predicted 196,000, the Department of Labor (DoL) reported. Meanwhile, the US Commerce Department disclosed the final reading of the Gross Domestic Product (GDP) for Q4 2022, which fell slightly below the estimated 2.7% at 2.6%.

The rise in US unemployment claims is more than welcomed by the Federal Reserve as it scrambles to curb elevated inflation. If the labor market continues that trend, that will help to drop inflation. However, it’s premature to call victory, as the Fed’s preferred gauge for inflation will be revealed on Friday. The Core Personal Consumption Expenditure (PCE) is estimated at 4.7% YoY.

On the Mexican front, most analysts expect Banxico’s last interest rate hike of its tightening cycle of 25 bps, leaving the TIIE at 11.25%. TD Securities Senior Latam Strategist Joel Virgen Rojano wrote in a note, “We expect Banxico to hike in 25bps on March 30 and hit terminal at 11.25%. We think the bar is high for the central bank to contradict its own forward guidance once again.”

Regarding the future of the Mexican Peso after Banxico’s decision, Virgen Rojano added, “We do not expect a meaningful MXN reaction to Banxico’s decision as we think it has been mostly priced in. However, we expect a gradual weakening of MXN against the USD in the coming months."

USD/MXN Technical levels