Mexican Peso regains ground ahead of Fed and Banxico meeting
- Mexican Peso improves slightly against the US Dollar, supported by expectations of a Fed rate cut and strong Mexican data.
- Traders await the Fed's decision and dot plot for indications of future rate adjustments, with expectations of three cuts in 2025.
- The upcoming Banxico decision is likely to influence the USD/MXN pair.
The Mexican Peso recovered some ground against the US Dollar on Wednesday as market participants await the Federal Reserve’s (Fed) monetary policy decision. Mexican economic data also lent a lifeline to the emerging market currency, which remained pressured during the last two days. The USD/MXN exchanged hands at 20.14, down 0.18%.
The market remains sideways ahead of the Fed’s decision. According to fed funds rates futures contracts, traders had priced in a 25-basis-point rate cut (bps), bringing rates to a target range of 4.25%—4.50%. However, traders are focused on the release of the Fed’s dot plot, which policymakers use to reveal where they see rates throughout the year.
According to a Bloomberg survey of economists, Fed officials are projected to confirm three rate cuts for 2025 in the December dot plot. In September, policymakers estimated that the fed funds rate would end near 3.4% in 2025.
After that, Fed Chair Jerome Powell will host its latest post-monetary policy press conference of the year.
In addition, Mexico’s economic docket revealed that private spending increased in the third quarter, as revealed by the Instituto Nacional de Estadistica Geografia e Informatica (INEGI).
On December 19, the Banco de Mexico (Banxico) is expected to cut interest rates by a quarter of a percentage point to 10.00%
Ahead this week, Mexico’s docket will feature Banxico's monetary policy. in the US, investors will also focus on Thursday's US GDP data and the Fed’s favorite inflation gauge, the core Personal Consumption Expenditures (PCE) Price Index, which could impact Bullion demand.
Daily digest market movers: Mexican Peso hovers around 20.20
- Mexico Private Spending in Q3 rose by 1.1% QoQ, above Q2 0.6% expansion. Yearly, dipped from 3.3% to 2.9% for the same period.
- Mexican Retail Sales for October disappointed investors, missing estimates on monthly and annual figures, which indicates that the economy continues to slow down.
- Banxico's December private sector survey forecasts Mexico's inflation to close 2024 at 4.37%, with core inflation easing to 3.60%, down from November’s 3.69%. Economic growth is expected at 1.60%, up from the previous 1.53%, while the USD/MXN exchange rate is projected at 20.25.
- For 2025, inflation is expected to decline to 3.80%, while core inflation is projected to rise slightly to 3.72%. GDP growth is forecast at 1.12%, lower than November’s 1.20% estimate, and the USD/MXN exchange rate is anticipated to reach 20.53.T
- Analysts at JPMorgan hinted that Banxico could lower rates by 50 basis points as inflation data shows that prices are edging lower faster than expected.
USD/MXN technical outlook: Mexican Peso remains steady at round 50-day SMA
The USD/MXN remains upward biased, with the pair bottoming near the 50-day Simple Moving Average (SMA) at 20.11. Momentum is sideways, as depicted by the Relative Strength Index (RSI) almost flat at its neutral line. Hence, the exotic pair has found acceptance at around the 20.00-20.20 range, ahead of the end of 2025.
For a bullish continuation, buyers must clear 20.20 before challenging the psychological 20.50. On further strength, the next resistance would be the December 2 daily high of 20.59, followed by the year-to-date peak of 20.82 and the 21.00 mark.
Conversely, if USD/MXN falls beneath the 50-day Simple Moving Average (SMA) at 20.11, the next support would be 20.00. Further downside is seen at the 100-day SMA at 19.74, ahead of exposing 19.50.
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.