Mexican Peso slips despite strong Retail Sales, Banxico dovish bets weigh
- Mexican Peso weakens 0.24% even as DXY slips, reflecting Banxico rate cut expectations.
- Data shows resilient Retail Sales, but economic contraction fuels a dovish policy outlook.
- Citi survey predicts Banxico cutting 50 bps this week; markets also eye US PCE inflation print.
The Mexican Peso (MXN) dips against the US Dollar (USD) in early trading during Tuesday’s North American session, as the emerging market currency fails to advance following a strong Retail Sales report for January, released by the Instituto Nacional de Estadística, Geografía e Informática (INEGI). At the time of writing, USD/MXN exchange rate is 20.07, up 0.24%.
The Peso remains on the defensive, even though the Greenback posts losses, as depicted by the US Dollar Index (DXY). The DXY, which measures the performance of the American currency against other six, falls 0.23% and clings to the 104.00 figure.
INEGI reported that consumers continue to spend at a good pace, as revealed by Retail Sales. Nevertheless, January’s economic contraction and the dip in mid-month inflation in March had increased the odds that Banco de Mexico (Banxico) would reduce interest rates by 50 basis points (bps) at its Thursday meeting, from 9.50% to 9%.
The Citi Expectations Survey revealed that most private economists expect Banxico to reduce rates by 50 basis points. According to the survey, Mexico’s primary reference rate is expected to end 2025 at 8%, down from 8.25%.
Given the backdrop, further upside is seen in USD/MXN. However, if US President Donald Trump makes tariff exemptions to Mexico, the outlook for the economy could improve. Hence, the Peso could strengthen and exert downward pressure on the exotic pair.
Ahead this week, Mexico’s docket will feature the Balance of Trade and Banxico’s interest rate decision. Across the border, the US schedule will feature the release of the Fed’s preferred inflation gauge, the core Personal Consumption Expenditures (PCE) Price Index.
Daily digest market movers: Mexican Peso drops ahead of imminent Banxico rate cut
- Mexico’s Retail Sales in January grew by 0.6% MoM, up from December’s 0.1% and estimates of 0.1%. In the twelve months to January, sales rose by 2.7%, up from a contraction of 0.2%, crushing forecasts of 1.1%.
- On Monday, the Consumer Price Index (CPI) for the first half of March dipped compared to estimates on both a monthly and annual basis. Core inflation stood within Banxico’s target of 3% plus or minus 1% on inflation.
- The Citi Mexico Expectations Survey revealed that analysts expect interest rates to end at 8% in 2025, down from 8.25% in the previous release. USD/MXN is expected to end at 20.98, down from 21.00 in the last survey.
- Inflation expectations remained anchored in the high 3% range, while GDP is foreseen to expand by 0.6%, down from 0.8% in the last survey.
- Traders had priced the Fed to ease policy by 65 basis points (bps) throughout the year, as revealed by data from the Chicago Board of Trade.
USD/MXN technical outlook: Mexican Peso loses traction as USD/MXN rises past 20.10
USD/MXN trade has been choppy, consolidating around the 20.00–20.20 range for the last couple of days, with neither buyers nor sellers able to break the range. It’s worth noting that the pair is tilted to the downside after sellers cleared strong support at the 50 and 100-day Simple Moving Averages (SMAs) at 20.38, 20.22, which exacerbated the downtrend below 20.20.
For a bearish continuation, a drop below 20.00 is needed. If cleared, nothing is in the way to test the 200-day SMA at 19.70, followed by the September 18 swing low of 19.06. On the other hand, if bulls clear the 20.20 mark, the USD/MXN pair would be poised to test the confluence of the 100 and 50-day SMAs, ahead of the 20.50 area.
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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