- Mexican Peso slips modestly against the US Dollar, reflecting cautious sentiment before US CPI release.
- US Dollar finds footing after last week’s drop, bolstered by adjustments in Treasury yields.
- Industrial Production data looms for Mexico with forecasts pointing to a monthly decline alongside annual growth.
The Mexican Peso shows minimal movement against the US Dollar on Monday amid a risk-off sentiment leading up to the release of the latest inflation report in the United States. The Greenback is recovering from losses incurred last week, and US Treasury yields are seeing a partial rebound. Despite these factors, the USD/MXN pair is trading at 16.79, experiencing a marginal decline of 0.02%.
In Mexico’s economic calendar, Industrial Production is scheduled for release on Tuesday, with expectations of a -0.7% monthly decline and an estimated 2.2% growth. On the other side of the border, the New York Fed reported that inflation expectations for one year stand at 3%, while expectations for three years have decreased from 2.7% to 2.4%. Tuesday will see the US Bureau of Labor Statistics (BLS) unveiling February’s Consumer Price Index (CPI).
Daily digest market movers: Mexican Peso buyers wait for US CPI; Fed rate cuts eyed in June
- Last week, Federal Reserve Chair Jerome Powell reiterated that the Fed is not prepared to cut rates until they are convinced that inflation is moving towards the 2% target. In terms of data, the business activity in the US sector remained mixed, while Factory Orders witnessed a significant decline. The ADP Employment Change report indicated a further cooling in the labor market, despite sustained solid private hiring. The revision of January’s Nonfarm Payrolls report triggered reactions in the swaps market.
- A Reuters poll revealed that investors anticipate the Fed to be the first central bank to cut rates in June. Additionally, 52 out of 108 economists expect the Fed to cut rates by 75 basis points in 2024, with 26 anticipating a 100 basis points cut. According to a Reuters poll, the Mexican Peso is projected to depreciate by 7% to 18.24 in 12 months from the current level of 16.96, based on the median estimate of 20 FX strategists polled between March 1-4. The forecast range varies from 15.50 to 19.00.
- Another Reuters poll, featuring 15 analysts, suggests that inflation will slow down in February, supporting expectations that the Bank of Mexico (Banxico) could cut rates as early as the March 21 meeting. Banxico’s private analysts’ poll projections for February include expectations of inflation at 4.10%, core CPI at 4.06%, and the economy growing by 2.40%, unchanged from January. In terms of monetary policy, they foresee Banxico lowering rates to 9.50%, with the USD/MXN exchange rate at 18.31, down from 18.50.
- During Banxico’s quarterly report, policymakers acknowledged progress on inflation and urged caution against premature interest rate cuts. Governor Victoria Rodriguez Ceja emphasized that adjustments would be gradual, while Deputy Governors Galia Borja and Jonathan Heath called for prudence. Heath specifically warned against the risks of an early rate cut. Banxico updated its economic growth projections for 2024 from 3.0% to 2.8% YoY and maintained 1.5% for 2025, attributing the slowdown to higher interest rates at 11.25%. This development has sparked a shift in three of the five governors of the Mexican Central Bank, who are now considering the first rate cut at the March 21 meeting. The CME FedWatch Tool indicates that traders have increased their bets for a 25-basis-point rate cut in June to 72%.
Technical analysis: Mexican Peso stays almost flat as USD/MXN hovers around 16.80
The USD/MXN pair maintains a downward bias, although it seems to have found support near 17.80. While the Relative Strength Index (RSI) has slightly increased, potential downsides persist. A breach below the current year-to-date (YTD) low of 16.76 may pave the way for a challenge of last year’s low at 16.62.
Conversely, a resurgence by buyers beyond the 17.00 level could lead to a test of the 50-day Simple Moving Average (SMA) at 17.05, followed by the 200-day SMA at 17.23 and the 100-SMA at 17.24.
USD/MXN Price Action – Daily Chart
