- Mexican Peso strengthens further against the US Dollar, as participants estimate Banxico to hold rates unchanged.
- Mexico’s inflation reports a slight decrease, though supports the central bank’s restrictive stance.
- Mixed messages from Federal Reserve officials keep market participants on their toes, as they eye Fed Chairman Jerome Powell’s speech.
Mexican Peso prints modest gains against the US Dollar in early trading on Thursday with traders awaiting the Bank of Mexico’s (Banxico) monetary policy decision. Banxico is not expected to rock the boat, as analysts estimate it will keep rates at 11.25%. Therefore, the USD/MXN is trading at 17.49, down a decent 0.23%, portraying some Peso strength.
Mexico’s economic docket witnessed inflation coming in a tick lower than expected and below previous readings, though the pace of the deflationary process is losing steam. That would refrain Banxico from adopting a dovish posture in its monetary policy statement. Meanwhile, economic data in the United States (US) showed that unemployment claims for the last week fell, indicating strength in the labor market.
Aside from this, Federal Reserve (Fed) officials continued to strike mixed signals, as Philadelphia Fed Patrick Harker emphasized that rates need to remain higher for longer. On the contrary, Chicago’s Fed Goolsbee turned dovish as he saw risks of overshooting rates. Late in the day, Fed Chair Jerome Powell would take the stand at around 19:00 GMT.
Daily digest movers: Mexican Peso remains firm as inflation in Mexico slows down
- Mexico’s Consumer Price Index (CPI) was 4.26% YoY in October, below forecasts of 4.28%, and the previous reading of 4.45%.
- On a monthly basis, inflation rose 0.39%, above the 0.38% consensus and September’s 0.44%.
- Core inflation in Mexico stood high at 5.5% YoY as expected and below September’s data; while prices on a monthly basis ticked up from the 0.39% MoM estimated, above last month’s data and the 0.38% forecast.
- Initial Jobless Claims in the United States for the week ending November 4, rose by 217K, below estimates of 218K, and last week’s 220K.
- USD/MXN gains remain capped even though the American Dollar falls as shown by the US Dollar Index (DXY), a gauge that tracks the buck´s value against a basket of six currencies, retreating 0.05%, down at 105.47.
- Money market futures have priced in a 25 bps rate cut by the Federal Reserve in July 2024.
- Mexico´s economy remains resilient after October’s S&P Global Manufacturing PMI improved to 52.1 from 49.8, and the Gross Domestic Product (GDP) expanded by 3.3% YoY in the third quarter.
- On October 24, Mexico’s National Statistics Agency, INEGI, reported annual headline inflation hit 4.27%, down from 4.45% at the end of September and below forecasts of 4.38%.
- Banxico revised its inflation projections from 3.50% to 3.87% for 2024, which remains above the central bank’s 3.00% target (plus or minus 1%). The next decision will be announced on November 9 at 19:00 GMT
Technical Analysis: Mexican Peso appreciates though USD/MXN could aim higher as golden cross formation looms
The USD/MXN remains neutrally biased, though about to form a golden cross with the 50-day Simple Moving Average (SMA) crossing above the 200-day SMA, each at 17.67 and 17.68, respectively. That could pave the way for further upside. However, buyers need to lift the exchange rate above the 17.70 area, so they can challenge the 20-day SMA at 17.95, ahead of the psychologically 18.00 figure.
On the flip side, key support levels lie at Monday’s low of 17.40, followed by the 100-day Simple Moving Average (SMA) at 17.32. A breach of the latter will expose the 17.00 figure before the pair aims to test the year-to-date (YTD) low of 16.62.
Banxico FAQs
The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican Peso (MXN), and to set the monetary policy. To this end, its main objective is to maintain low and stable inflation within target levels – at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%.
The main tool of the Banxico to guide monetary policy is by setting interest rates. When inflation is above target, the bank will attempt to tame it by raising rates, making it more expensive for households and businesses to borrow money and thus cooling the 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. The rate differential with the USD, or how the Banxico is expected to set interest rates compared with the US Federal Reserve (Fed), is a key factor.
Banxico meets eight times a year, and its monetary policy is greatly influenced by decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee usually gathers a week after the Fed. In doing so, Banxico reacts and sometimes anticipates monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico did it first in an attempt to diminish the chances of a substantial depreciation of the Mexican Peso (MXN) and to prevent capital outflows that could destabilize the country.
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