- Mexican Peso sees modest losses as US inflation data tempers Fed easing expectations.
- Industrial Production in Mexico shows resilience, reinforcing views on potential Banxico rate adjustments.
- Deputy Governor Omar Mejia hints at upcoming rate cuts, with a focus on maintaining restrictive monetary policy.
- US Industrial Production recovery and shifts in consumer sentiment barely move the USD/MXN currency pair.
Late in Friday’s session, the Mexican Peso experienced depreciation against the US Dollar, yet it is poised to conclude the week with a 0.50% gain. The main catalyst for today’s movement is traders adjusting their expectations regarding a less dovish stance from the Federal Reserve (Fed) following the release of inflation figures that were deemed ‘warm’. As a result, the USD/MXN pair is trading at 16.70, registering a 0.04% increase.
In Mexico’s economic calendar for the week, Industrial Production data was released, showing a marginal improvement despite facing high-interest rates set at 11.25% by the Bank of Mexico (Banxico). Just two days ago, Banxico’s Deputy Governor, Omar Mejia, suggested the possibility of a rate cut, emphasizing that such a move is not premature and that even with lower interest rates, monetary policy remains restrictive. The next meeting of the Mexican Central Bank is scheduled for March 21, with market participants anticipating a 25-basis-point rate reduction.
Across the border, the US economic agenda is somewhat more active. The Federal Reserve reported a recovery in Industrial Production, ending a two-month streak of declines. Additionally, the University of Michigan recently released data indicating a slight deterioration in consumer sentiment compared to both the previous month’s figures and market expectations.
Daily digest market movers: Mexican Peso counterattacks ahead of Banxico and Fed decisions
- Banxico’s Mejia remarked that there is still a considerable distance to cover on the path of disinflation, although he acknowledged the persistent nature of services inflation. He emphasized that the balance of risks for inflation is now less skewed.
- Looking ahead to Mexico’s economic agenda for the upcoming week, key data releases will include Aggregate Demand, Private Spending, Retail Sales, Economic Activity, and inflation figures for the first half of March. However, the focal point will undoubtedly be Banxico’s interest rate policy decision.
- In Banxico’s latest private analyst poll projections for February, expectations are for inflation to stand at 4.10%, core CPI at 4.06%, and economic growth to remain unchanged at 2.40% from January. Regarding monetary policy, analysts anticipate Banxico lowering rates to 9.50% and the USD/MXN exchange rate to decline to 18.31 from 18.50.
- During Banxico’s quarterly report, policymakers acknowledged progress in containing inflation and advocated for caution against premature interest rate cuts. Governor Victoria Rodriguez Ceja emphasized that any adjustments would be gradual, while Deputy Governors Galia Borja and Jonathan Heath urged prudence, with Heath specifically warning against the risks of acting too hastily.
- Banxico revised its economic growth projections for 2024 downward from 3.0% to 2.8% YoY and maintained a growth forecast of 1.5% for 2025. The slowdown is attributed to the high interest rates currently at 11.25%, which prompted a shift in stance from three of Banxico’s five governors, who are considering the possibility of a rate cut at the March 21 meeting.
- According to a Reuters poll of 20 FX strategists conducted between March 1-4, the Mexican Peso is expected to depreciate by 7% to 18.24 against the US Dollar within the next 12 months. Additionally, 15 analysts foresee a slowdown in inflation in February, supporting expectations that Banxico may cut rates at the upcoming meeting.
- In the United States, recent data including US Industrial Production and the University of Michigan Consumer Sentiment preliminary reading continue to influence market sentiments. These figures, along with the release of the latest Consumer Price Index (CPI) report, reinforce the Federal Reserve’s stance of patience regarding interest rate cuts until sustainable progress is observed toward the 2% inflation goal.
- Looking ahead, the US economic calendar for the upcoming week includes significant events such as housing data, the Federal Open Market Committee (FOMC) monetary policy decision, and a press conference by Fed Chair Jerome Powell. Additionally, releases such as the Current Account, Initial Jobless Claims, S&P Global PMI, Existing Home Sales, and a speech by Atlanta Fed President Raphael Bostic are anticipated to impact market movements.
Technical analysis: Mexican Peso stays firm with USD/MXN spot below 16.70
The downtrend in USD/MXN remains consistent, although the pair appears oversold after reaching year-to-date lows of 16.64. The Relative Strength Index (RSI) has dipped below the 30.00 threshold and remains stagnant, potentially signaling further downside potential. In such a scenario, the next support level would be last year’s low of 16.62. A breach of this level could intensify the decline, possibly testing the October 2015 low of 16.32, followed by the psychologically significant level of 16.00.
Conversely, if buyers manage to push the USD/MXN exchange rate towards January’s low of 16.78, it could set the stage for a challenge towards the 17.00 mark. Significant resistance levels are anticipated at the 50-day Simple Moving Average (SMA) at 17.03, followed by the 100-day SMA at 17.17, and the 200-day SMA at 17.21.
USD/MXN Price Action – Daily Chart
