Mexican Peso strengthens amid mixed inflation data, shrugging off Trump victory
- Mexican Peso posts four consecutive days of gains; USD/MXN tumbles below 20.00.
- Mixed Mexican data as inflation rises, but core inflation dips, potentially allowing further Banxico easing.
- Supreme Court dismisses judicial reform challenge, easing Mexico’s political tensions.
- Fed expected to cut rates; Powell's comments could hint at a cautious easing approach.
The Mexican Peso rallied against the Greenback on Thursday after Donald Trump’s victory in the US presidential election. Mexico revealed mixed figures on Auto Exports and Inflation, overshadowed by the Fed's upcoming monetary policy decision. The USD/MXN trades at 19.85, down 1.08%.
The Instituto Nacional de Estadística Geografía e Informatica (INEGI) revealed that headline inflation for Mexico in October rose above estimates, but core dipped, clearing the way for further easing by the Bank of Mexico (Banxico). A day ago, INEGI announced Auto Exports grew for the same period, but production stalled.
Meanwhile, political turmoil faded after the Supreme Court dismissed Judge Juan Luis González Alcántara Carranca's proposal to invalidate some parts of the judicial reform bill approved in September.
President Claudia Sheinbum said she spoke with presumptive US President Donald Trump. “We had a very cordial call with President-elect Donald Trump in which we talked about the good relationship that there will be between Mexico and the United States,” she published on her X account.
Across the border, the US Bureau of Labor Statistics (BLS) revealed that the number of Americans applying for unemployment benefits rose above the prior week’s report, as expected.
USD/MXN traders are awaiting the Federal Reserve’s (Fed) decision. The Fed is expected to lower borrowing costs by 25 basis points (bps) later in the day and again at December’s meeting.
Brown Brothers Harriman Senior Analyst Win Thin said, “In our view, the vote split and Chair Powell’s post-meeting press conference will likely signal that the bar is high for the FOMC [to] cut rates more aggressively.”
Daily digest market movers: Mexican Peso soars ahead of Fed rate decision
- The USD/MXN will likely remain volatile after the US elections. Trump’s harsh rhetoric against Mexico and threats of imposing tariffs could increase the action. Traders should be aware of everything he says or tweets.
- Mexico’s Inflation in October rose from 4.58% to 4.76% YoY, exceeding estimates of 4.72%. Underlying prices dumped from 3.91% to 3.80% YoY, below forecasts of 3.85%.
- Automobile Exports rose from 4.8% to 5% YoY. Meanwhile, production dropped from 11.7% to 1.1%, hinting at the ongoing deceleration in the manufacturing sector.
- The BLS revealed that US Initial Jobless Claims for the week ending November 2 increased from 218K to 221K as widely expected.
- On Tuesday, the US economic schedule revealed that the Balance of Trade deficit widened while business activity cooled slightly.
- S&P Global revealed that October’s service activity dipped, while the Institute for Supply Management’s (ISM) Services PMI improved for the same period.
- Data from the Chicago Board of Trade, via the December fed funds rate futures contract, shows investors estimate 49 bps of Fed easing by the end of the year.
USD/MXN technical outlook: Mexican Peso’s offensive continues as USD/MXN drops under 20.00
The USD/MXN uptrend remains intact after the pair trimmed all of its November 6 gains. This saw the Peso depreciate toward 20.80 before staging a comeback as the pair drifted below the 20.00 figure.
If sellers want to remain in charge, they need to push the exchange rate below the five-month lower support trendline at 19.76, which would expose the 50-day Simple Moving Average (SMA) at 19.68. On further weakness, the next stop would be the psychological figures of 19.50, followed by the October 14 low of 19.23.
On the upside, USD/MXN must surpass the 20-day SMA at 19.89. This would shift the intraday bias to bullish, exacerbating a move toward the 20.00 figure. A breach of the latter will expose the August 5 high at 20.22, followed by the two-year high at 20.80.
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.
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