Most recent article: Mexican Peso gains against US Dollar ahead of key FOMC decision
- Mexican Peso falls over 0.41% after Mexico's Q1 GDP growth underperforms expectations.
- Stronger-than-expected US Employment Cost Index bolsters US Dollar, diminishing prospect for imminent Fed rate cut.
- Despite quarterly GDP growth exceeding expectations in Mexico, annual figures fail to meet forecasts, contributing to Peso's decline.
The Mexican Peso tumbles more than 0.41% against the US Dollar on Tuesday, following the release of Mexico’s Gross Domestic Product (GDP) figures missing estimates for the first quarter on a yearly basis.
That alongside with a reacceleration of inflation, according to data revealed in the United States (US), weighed on the Mexican currency. The Greenback has recovered some ground though. At the time of writing, the USD/MXN trades at 17.08 after hitting a low of 16.95.
Mexico’s National Statistics Agency (INEGI) revealed that GDP for Q1 2024 grew 1.6% YoY, a slower pace than the 2.4% in the last quarter of 2023 and beneath estimates of 2.1%. However, on a quarterly basis, the country grew 0.2% higher than the previous reading of 0.1% and exceeded the consensus of 0%.
Across the border, the US economic docket was busy, as the Employment Cost Index (ECI) a measure used by the Federal Reserve to assess inflation on wages was higher than expected, decreasing the odds of a rate cut by Fed Chairman Jerome Powell and Co.
Recent data witnessed Consumer Confidence deteriorating in the US, according to April’s data by the Conference Board.
This week, the US economic docket will be busy, though the most significant events will be the releases of the ISM Manufacturing PMI and the Fed’s monetary policy decision on May 1, followed by the Nonfarm Payroll figures on Friday and the ISM Services PMI.
Daily digest market movers: Mexican Peso tumbles on soft GDP, strong US inflation data
- Data revealed in April showed that Mexico’s inflation was mixed as headline inflation rose, mostly attributed to a jump in Oil prices. Contrarily, underlying prices dipped, justifying the Bank of Mexico’s (Banxico) decision to lower rates.
- Although most analysts estimate Banxico will hold rates unchanged at 11.00%, new data could open the door for heated discussions among Banxico’s Governing Council members on May 9.
- Last week, Banxico Governor Victoria Rodriguez Ceja said the central bank would be data-dependent. However, weak GDP data could pave way for a “live meeting” on May 9.
- Citibanamex Survey showed that most analysts expect Banxico to hold rates unchanged at the May meeting. The median foresees a rate cut in June, while they estimate the main reference rate to end the year at 10.00%, up from 9.63% previously.
- A broad gauge of US labor costs closely watched by the Federal Reserve accelerated in the first quarter by more than forecast, illustrating persistent wage pressure that is keeping inflation elevated.
- US Employment Cost Index (ECI), a measure of wages and benefits, rose by 1.2% QoQ after rising 0.9% at the end of 2023, exceeding forecasts of 1%, according to Bureau of Labor Statistics (BLS). That would keep the Fed on its holding pattern as fears of inflation reaccelerating loom.
- US Conference Board (CB) Consumer Confidence dropped in April from 103.1 to 97, its lowest level since mid-2022 as Americans’ view of the job market and the outlook for the economy deteriorated.
- Fed is expected to keep rates unchanged at May 1 meeting, though traders will be eyeing Fed Chair Jerome Powell’s press conference. A hawkish tilt could trigger a jump in favor of the Greenback; otherwise, the USD/MXN could resume its downtrend.
- Data from the Chicago Board of Trade (CBOT) suggests that traders expect the fed funds rate to finish 2024 at 5.080%, up from 5.035% on Monday.
MXN technical analysis: Mexican Peso trips lower as USD/MXN edges toward 200-day SMA
The Mexican Peso is making a U-turn, depreciating on Tuesday as the USD/MXN edges up. Even though the pair sits below the weekly high of 17.24, it is approaching quickly toward the 200-day Simple Moving Average (SMA) at 17.17. Once surpassed, the next stop would be the January 23 swing high of 17.38, followed by the year-to-date (YTD) high of 17.92, ahead of 18.00.
On the other hand, if USD/MXN buyers fail to conquer the 200-day SMA, further losses are seen beneath the 17.00 threshold. Once cleared, the next stop would be the 50-day SMA at 16.81 before challenging last year’s low of 16.62.
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD holds steady near 0.6250 ahead of RBA Minutes
The AUD/USD pair trades on a flat note around 0.6250 during the early Asian session on Monday. Traders brace for the Reserve Bank of Australia Minutes released on Tuesday for some insight into the interest rate outlook.
USD/JPY consolidates around 156.50 area; bullish bias remains
USD/JPY holds steady around the mid-156.00s at the start of a new week and for now, seems to have stalled a modest pullback from the 158.00 neighborhood, or over a five-month top touched on Friday. Doubts over when the BoJ could hike rates again and a positive risk tone undermine the safe-haven JPY.
Gold price bulls seem non-committed around $2,620 amid mixed cues
Gold price struggles to capitalize on last week's goodish bounce from a one-month low and oscillates in a range during the Asian session on Monday. Geopolitical risks and trade war fears support the safe-haven XAU/USD. Meanwhile, the Fed's hawkish shift acts as a tailwind for the elevated US bond yields and a bullish USD, capping the non-yielding yellow metal.
Week ahead: No festive cheer for the markets after hawkish Fed
US and Japanese data in focus as markets wind down for Christmas. Gold and stocks bruised by Fed, but can the US dollar extend its gains? Risk of volatility amid thin trading and Treasury auctions.
Bank of England stays on hold, but a dovish front is building
Bank of England rates were maintained at 4.75% today, in line with expectations. However, the 6-3 vote split sent a moderately dovish signal to markets, prompting some dovish repricing and a weaker pound. We remain more dovish than market pricing for 2025.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.