Mexican Peso steadies with Fed and Banxico decisions on tap
- The Mexican peso eases from the key 20.00 area amid US Dollar strength ahead of the Fed decision.
- Strong US data has boosted speculation that the Fed will adopt a hawkish stance after cutting rates on Wednesday.
- From a wider perspective, USD/MXN is on a bearish trend but needs an extra boost to breach the 20.00 level.
The Mexican Peso (MXN) is trading rangebound on Tuesday, at a short distance of the key 20.00 level against the US Dollar (USD). Investors are bidding their time ahead of key monetary policy decisions by the Federal Reserve (Fed) and the Bank of Mexico (Banxico) this week.
US preliminary S&P Global Purchasing Managers Index (PMI) data released on Monday revealed an unexpected improvement in services activity in December, and the market is bracing for a strong consumption reading for November later today.
These figures support the rhetoric of the US economic exceptionalism and bolster the case for very gradual Fed interest rate cuts next year. This sentiment keeps investors’ appetite for risk in check, boosting the US Treasury yields and buoying the US Dollar across the board.
In Mexico, retail consumption is expected to have picked up in October, still at levels well below last year in the same month. Consumer inflation and industrial output data disappointed last week, bolstering the case for a 25 basis points (bps) rate cut by Banxico on Thursday.
Daily digest market movers: US Dollar resumes gains with all eyes on the Fed
- The US Dollar Index (DXY) trades higher on Tuesday, approaching multi-week highs amid higher US Treasury yields and market expectations of a “hawkish cut” by the Fed on Wednesday.
- US Treasury yields keep marching higher. The Benchmark 10-year yield has breached the 4.40% level in a 7-day rally after bouncing at 4.13% early last week.
- The US preliminary Services PMI jumped to 58.5 in December, its best performance in more than three years, from 56.1 in November, against expectations of a moderate slowdown to 55.7.
- US preliminary Manufacturing PMI contracted to 48.3 from 49.7 in November, but the composite data points to healthy economic growth in the last quarter of the year.
- Later today, US Retail Sales are expected to have increased by 0.5% in November, up from 0.4% in the previous month. Excluding autos, consumption is seen accelerating at a 0.4% pace from 0.1% in the previous month.
- The CME FedWatch tool shows a 25 bps interest rate cut by the Fed on Wednesday is almost fully priced in, and the market expects one or two more such cuts next year.
- In Mexico, Retail Sales are expected to have increased by 0.2% in October, up from 0.1% in September. However, compared to October last year, they are expected to decrease by 1.6%.
- The Bank of Mexico is expected to lower interest rates by 25 basis points on Thursday, to a 10.00% rate, amid growing concerns that the increasing tariffs in the US will hit the Mexican economy.
US Dollar PRICE Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.21% | -0.08% | -0.28% | 0.20% | 0.43% | 0.35% | 0.23% | |
| EUR | -0.21% | -0.28% | -0.50% | -0.01% | 0.22% | 0.14% | 0.03% | |
| GBP | 0.08% | 0.28% | -0.20% | 0.28% | 0.51% | 0.43% | 0.33% | |
| JPY | 0.28% | 0.50% | 0.20% | 0.48% | 0.72% | 0.62% | 0.54% | |
| CAD | -0.20% | 0.00% | -0.28% | -0.48% | 0.24% | 0.15% | 0.05% | |
| AUD | -0.43% | -0.22% | -0.51% | -0.72% | -0.24% | -0.08% | -0.20% | |
| NZD | -0.35% | -0.14% | -0.43% | -0.62% | -0.15% | 0.08% | -0.10% | |
| CHF | -0.23% | -0.03% | -0.33% | -0.54% | -0.05% | 0.20% | 0.10% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Mexican Peso technical outlook: USD/MXN has strong support at the 20.00 area
The USD/MXN is trading lower from its late November highs near 20.80, but the 20.00 psychological level keeps holding downside attempts. The pair has been consolidating between the mentioned 20.00 support and 20.30 for the last seven trading days.
The Mexican Peso would need an additional impulse to breach the 20.00 level against the US Dollar and shift its focus toward the October 24 and 25 and November 7 lows, at 19.75
On the upside, the USD/MXN needs to confirm above 20.30 before aiming for the December 2 high at 20.60 and November’s peak at around 20.80.
USD/MXN 4-Hour Chart
Mexican Peso FAQs
The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.
The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall 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.
Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.
As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.