The Mexican Peso (MXN) has continued its downward trend against the US Dollar (USD), reaching a new peak of 19.74 on the USD/MXN exchange rate.
Banxico, Mexico’s central bank, recently cut interest rates by 25 basis points (bps) to 10.50%, which is expected to weaken the peso further. The decision was made in response to slowing economic activity and rising inflation expectations for 2024.
In contrast, US Personal Consumption Expenditures (PCE) inflation edged lower in August, but remained within the Federal Reserve’s target range of 2-3%. Core PCE, which excludes volatile items like food and energy, also ticked up by a tenth.
However, data on personal spending and income showed signs of deceleration, while consumer sentiment improved according to the University of Michigan Consumer Sentiment Index for September.
In Mexico, Banxico’s decision to cut interest rates has sparked concerns about inflation. The bank revised its inflation expectations upward for both headline and core figures in 2024, citing a cooling labor market and pressure on prices. Despite this, officials maintained that monetary policy remains restrictive.
Mexico’s Balance of Trade showed a larger-than-expected deficit in August, which is likely to put downward pressure on the peso.
Daily digest market movers:
* Mexican Peso tumbles after Banxico cuts rates
* US inflation data shows core PCE within target range
* Mexico’s Balance of Trade prints larger-than-expected deficit
Additional details include:
* The Federal Reserve’s favorite inflation gauge, the Personal Consumption Expenditures (PCE) Price Index, was lower than expected in August.
* Core PCE edged modestly up, from 2.6% to 2.7%, for the same period.
* Banxico is expected to lower borrowing costs by 175 bps toward the end of 2025, according to swaps markets.
* The US Dollar Index (DXY) remains virtually unchanged at 100.50.
* Market participants have fully priced in a 25 bps rate cut by the Fed, with odds for 50 bps easing at 54.7%.
Technical analysis:
The USD/MXN resumed its uptrend, hitting a daily high of 19.74. The Relative Strength Index (RSI) remains bullish, hinting that momentum favors buyers.
Therefore, the USD/MXN could be headed for further gains, with resistance levels at 19.75, 19.84, and 20.00. If those levels are cleared, the current year-to-date high of 20.22 will be exposed.
On the other hand, if USD/MXN struggles to break 19.75, it could pave the way for lower prices, with support levels at 19.50, 19.23, and 19.06.
Source: FX Street
