- The Mexican Peso strengthens as lower-than-expected inflation in February sparks speculation of an imminent rate cut by Banxico.
- Mexico’s CPI data presents mixed signals, creating anticipation in the markets ahead of the crucial Banxico decision on March 21.
- The cooling US job market and a widening trade deficit complicate the Federal Reserve’s policy outlook, while Powell reiterates a cautious stance.
The Mexican Peso registered marginal gains against the US Dollar following the disclosure by Mexico’s National Statistics Agency (INEGI) that inflation moderated in February. Consequently, speculation about the potential for the Bank of Mexico (Banxico) to implement its first rate cut has gained prominence. This anticipation is likely to exert downward pressure on the emerging market currency, providing support to the USD/MXN pair, which is currently trading at 16.88, reflecting a 0.13% decline.
In February, Mexico’s Consumer Price Index (CPI) exhibited lower-than-expected figures on both a monthly and annual basis. Despite the month-on-month (MoM) data for underlying CPI meeting expectations and showing a slight increase compared to January, annual inflation saw a dip. The prospect of Banxico’s inaugural rate cut on March 21 remains uncertain, pending the release of additional data leading up to the meeting.
In the United States, there are signs of a cooling job market, with the number of Americans filing for unemployment claims surpassing estimates, consistent with the previous week’s data, indicating a more balanced labor market. Concurrently, the US trade deficit expanded in January as imports outpaced December’s growth.
As of the current writing, US Federal Reserve Chair Jerome Powell is testifying before the US Senate Banking Committee on Capitol Hill. His statements echo some of Wednesday’s remarks, emphasizing that if the economy unfolds as expected, the Fed will cautiously transition away from its restrictive policy stance.
Daily digest market movers: Mexican Peso boosted by broad US Dollar weakness
- Mexico’s year-on-year inflation stood at 4.40%, slightly below expectations of 4.42% and January’s 4.88%, with a monthly decline from 0.11% to 0.09%.
- The Core CPI, excluding volatile items, exceeded forecasts at 4.64%, though lower than the previous 4.76%, while monthly figures aligned with estimates at 0.49%, up from 0.40%.
- Earlier data revealed Mexico’s consumer confidence index at 47.0 (adjusted) and 47.1 (unadjusted) for February, and December’s Gross Fixed Investment remained flat month-on-month but dipped from 19.2% to 13.4% annually.
- A Reuters poll anticipates a 7% depreciation of the Mexican Peso to 18.24 in the next 12 months, with inflation expected to slow in February, supporting predictions for a potential rate cut by Banxico on March 21.
- In Mexico’s General Election campaign, Claudia Sheinbaum leads with 49% support, while Galvez, the opposition candidate, stands at 29%.
- Banxico’s private analytics poll projects February inflation at 4.10%, core CPI at 4.06%, and the economy growing at 2.40%. They anticipate a rate cut to 9.50% and a USD/MXN exchange rate at 18.31.
- During Banxico’s quarterly report, policymakers emphasized caution against premature rate cuts, with a shift in three of the five governors eyeing a potential cut on March 21.
- Banxico revised its 2024 economic growth projections from 3.0% to 2.8% YoY and maintained 1.5% for 2025 due to higher interest rates at 11.25%.
- Economic trade issues between Mexico and the US could impact the Mexican currency, and the US Trade Representative warned of potential tariffs on steel and aluminum.
- US economic data influenced the USD/MXN prospects, with buyers struggling to keep the exchange rate above 17.00.
- In the US, the political landscape after Super Tuesday sees Donald Trump leading Republicans and Joe Biden leading Democrats.
- Initial Jobless Claims for the week ending March 2 were 217K, surpassing estimates, and the US Balance of Trade was $-67.4 billion, exceeding estimates and higher than December’s $-64.2 billion.
- As Fed Chair Jerome Powell testifies, the CME FedWatch Tool indicates increased bets for a 25-basis-point rate cut in June, rising from 52.7% to 71.9% in the past week.
Technical analysis: Mexican Peso advance continues as USD/MXN holds firm below 16.90
The downward momentum of USD/MXN persists, as sellers successfully maintain the exchange rate below 16.90. A breach below the year-to-date (YTD) low of 16.78 could trigger a more substantial correction, extending beyond the low of 16.62 witnessed last year. Initial targets include the low from October 2015 at 16.32 and the key level of 16.00.
Conversely, if buyers manage to reclaim the 17.00 figure, this may pave the way for a test of the 50-day Simple Moving Average (SMA) at 17.05. Subsequent resistance levels to watch for are the 200-day SMA at 17.24 and the 100-SMA at 17.38.
USD/MXN Price Action – Daily Chart
