- Mexican Peso hovers near the 50-day SMA at 20.11, with the USD/MXN showing minimal movement after US PMIs data.
- Banxico is widely anticipated to cut rates following encouraging November inflation figures, with most economists predicting a 25 bps reduction.
- Anticipation builds around upcoming rate decisions from the Fed and Banxico.
The Mexican Peso begins the week on the back foot, yet it remains near the 50-day Simple Moving Average (SMA) at 20.11 as US business activity expanded in the services sector while manufacturing remains depressed. At the time of writing, the USD/MXN trades with minimal gains of over 0.06%, virtually unchanged.
US S&P Global revealed December’s Flash PMIs, which came in mixed. The Services and Composite PMIs jumped above the prior month’s reading, indicating economic strength. However, manufacturing activity contracted after hitting its highest level in the last six months.
The USD/MXN ignored the data yet held to earlier gains. The exotic pair could witness some volatility in the next few days as the Federal Reserve (Fed) and the Banco de Mexico (Banxico) will announce their latest monetary policy decisions.
The CME FedWatch Tool data show that the Fed is expected to cut rates by 25 basis points on December 18 with odds at 98%. Meanwhile, a Reuters poll showed that 20 of 22 economists expect Banxico to cut rates by 25 bps to 10.00%, while two estimate the institution will lower rates by 50 bps.
Mexico’s data last week gave the green light to its central bank to ease policy. November inflation data confirmed that the disinflation process is accelerating.
This week, Mexico will feature Retail Sales data, Aggregate Demand, Private Spending, and Banxico’s interest rate decision. In the US, Retail Sales, Building Permits, the Federal Open Market Committee (FOMC) decision, and the Fed’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index, could dictate the monetary policy path for the US central bank.
Daily digest market movers: Mexican Peso trades sideways following Banxico survey
- Banxico’s December private sector survey showed that most economies expect inflation to end at 4.37% in 2024 and underlying prices at 3.60%, down from November’s 3.69%. The economy is expected to grow 1.60%, up from 1.53%, and the USD/MXN exchange rate is foreseen at 20.25.
- For 2025, the Mexican Consumer Price Index (CPI) is projected to drop to 3.80%, and the core CPI to rise to 3.72%. Gross Domestic Product (GDP) is expected at 1.12%, down from 1.20% estimated in November, and the USD/MXN spot price would end at 20.53.
- The Banco de Mexico Interbank Lending Rate, known as TIIE, is expected to drop from 10.00% in 2024 to 8.38% by the end of next year.
- The Peso has been pressured by harsh rhetoric by US President-elect Donald Trump, who threatened to impose 25% tariffs on Mexican imports if the government doesn’t help fight illegal immigration and fentanyl trafficking.
- 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 drops as USD/MXN hovers near 20.10
The USD/MXN remains upwardly biased, though it seems likely to edge lower in the near term. Momentum shifted bearishly with the Relative Strength Index (RSI) falling below its neutral level. If sellers can hurdle some support levels, the exotic pair will see further downside.
The 50-day Simple Moving Average (SMA) at 20.08 continued to cap the USD/MXN fall. If surpassed, the next stop would be the 20.00 figure, with further drops seen to the 100-day SMA at 19.71. A breach of the latter will expose 19.50.
Conversely, if USD/MXN climbs past 20.25, immediate resistance would be 20.50. Once hurdled, it will expose the December 2 daily high of 20.59, followed by the year-to-date peak of 20.82, followed by the 21.00 mark.
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 gains as the USD backs off
The Australian Dollar holds the bounce above 0.6350 in Monday’s session, supported by mixed Chinese economic releases and a softer US Dollar. Traders remain focused on Wednesday’s Federal Reserve interest rate decision, which could shape near-term price action.
USD/JPY flat lines around 154.00, eyes on US Retail Sales release
The USD/JPY pair trades flat around 154.10 during the early Asian session on Tuesday. Traders prefer to wait on the sidelines ahead of the Federal Reserve and the BoJ interest rate decision later this week. On Tuesday, the US November Retail Sales will be published.
Gold stuck around $2,650 ahead of fresh clues
Gold opens the week on a moderately positive tone and trades above $2,650, favored by a mild US Dollar (USD) reversal amid lower US Treasury yields. The precious metal, however, is still close to recent lows following a 2.5% sell-off late last week.
Crypto Today: MicroStrategy drives BTC to $107K as Fed cut hype sparks Ondo, Chainlink rallies
The global crypto market snapped out of a tepid start to the month after hotter-than-expected consumer inflation data sparked hopes of a third consecutive US Fed rate cut.
Five fundamentals for the week: Fed dominates the last full and busy trading week of the year Premium
Christmas is coming – but there's a high likelihood of wild price action before the holiday season begins. Central banks take center stage, and there is enough data to keep traders busy outside these critical decisions.
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.