USD/MXN tumbles below 18.0000 amid solid US earnings and higher inflation concerns

The Mexican Peso (MXN) appreciates during the last trading day of the week, as shown by the USD/MXN tumbling 0.25%, amidst a risk-on impulse due to US stocks posting solid earnings. US data flashed signs that inflation is too high, a green light for another rate increase by the Federal Reserve (Fed). At the time of writing, the USD/MXN is trading at 17.9830 after hitting a high of 18.1089.

USD/MXN holds steady weekly gains of 0.70%, despite lackluster response to US data

Wall Street finished the last trading day of April with solid gains, propelled by earnings from Exxon and Intel. A report by the US Commerce Department showed that inflation in March, as measured by the Fed’s preferred gauge for inflation, the core Personal Consumption Expenditure (PCE), rose by 0.3% MoM in line with estimates. On an annual basis, figures rose by 4.6%, above forecasts of 4.5%, increasing the chances for another quarter of percent rate hike by the US central bank.

Given the backdrop, the swaps market continued to price in a 25 bps hike for the May meeting though investors remain reluctant to believe the Fed’s rhetoric of going higher for longer. The CME FEdWatch Tool odds for a 25 bps lift stood at 84%, but the first rate cut is expected by September.

In the meantime, the US Dollar Index (DXY), which tracks the value of six currencies against the greenback, advances 0.20% to 101.681 but fails to impress USD/MXN buyers as the pair extended its losses past the 18.0000 figure.

In other data, Consumer Sentiment in the US stood at 63.5, an improvement over the latest reading of 62.0, as revealed by the University of Michigan (UoM) poll. Inflation expectations for a one-year horizon rose to 4.6% from 3.6%, and expectations for a 5-year uptick to 3% from 2.9%.

On the Mexican front, the economy expanded by 1.1% QoQ, above the previous 0.5% growth in Q4, 2022, as reported by INEGI. On an annual basis, the Gross Domestic Product (GDP) grew by 3.9%, exceeding the forecasts of 3.3%.

Aside from this, USD/MXN traders would look for clues to next week’s Federal Reserve Open Market Committee (FOMC) decision on Wednesday afternoon, and the US Nonfarm Payrolls report on Friday

USD/MXN Technical Analysis

The downtrend in the USD/MXN pair stays intact after testing the 20-day EMA earlier in the day. However, USD/MXN sellers must drag the exchange rate below the April 25 low of 17.9505 if they want to re-test the YTD low at 17.8968. Conversely, the USD/MXN buyers must crack 18.0000 and the 20-day EMA at around 18.1000 if they want to challenge the 50-day EMA At 18.2910.