Mexican Peso tumbles sharply as Powell turns hawkish, despite Banxico’s decision

• Mexican Peso collapsed more than 0.90%, as USD/MXN edged toward 17.70.
• Banxico unanimously agrees to maintain rates, aiming for a 3% inflation target by 2025, amidst concerns of persistent inflationary pressures.
• Fed Chair Powell's remarks on the potential for further rate hikes if economic growth surges signal a cautious stance on inflation, impacting currency dynamics.

Mexican Peso losses steam after the Bank of Mexico (Banxico) held rates unchanged, while the Federal Reserve (Fed) Chair Jerome Powell pushed back against recent dovish postures adopted by a slew of Fed officials. Consequently, the USD/MXN rallies, and trades volatile, at around the 17.50/17.70 range, posting gains.

In it monetary policy statement, Banxico reinforced its posture to hold rates at the current level, with the bank committed to bringing headline inflation to its 3% target, which is expected to be reached in 2025. The decision was unanimously approved, while they stressed that inflation risks are tilted to the upside.

Across the border, the Fed Chair Jerome Powell said that the Fed is not confident they have attained a sufficiently restrictive stance, adding that they (Fed) would not hesitate to raise rates if needed while stressing they would be deciding meeting by meeting. Chair Powell added that stronger economic growth could undermine the inflation progress and warrant a monetary policy response.

Meanwhile, economic data in the United States (US) showed that unemployment claims for the last week fell, indicating strength in the labor market.

Daily digest movers: Mexican Peso falls despite Banxico's keepng rates unchanged

• Mexico’s Consumer Price Index (CPI) was 4.26% YoY in October, below forecasts of 4.28%, and the previous reading of 4.45%.
• On a monthly basis, inflation rose 0.39%, above the 0.38% consensus and September’s 0.44%.
• Core inflation in Mexico stood high at 5.5% YoY as expected and below September’s data; while prices on a monthly basis ticked up from the 0.39% MoM estimated, above last month’s data and the 0.38% forecast.
• Initial Jobless Claims in the United States for the week ending November 4, rose by 217K, below estimates of 218K, and last week’s 220K.
• Federal Reserve (Fed) officials continued to strike mixed signals, as Philadelphia Fed Patrick Harker emphasized that rates need to remain higher for longer. On the contrary, Chicago’s Fed Goolsbee turned dovish as he saw risks of overshooting rates.
• Money market futures have priced in a 25 bps rate cut by the Federal Reserve in July 2024.
• Mexico´s economy remains resilient after October’s S&P Global Manufacturing PMI improved to 52.1 from 49.8, and the Gross Domestic Product (GDP) expanded by 3.3% YoY in the third quarter.
• On October 24, Mexico's National Statistics Agency, INEGI, reported annual headline inflation hit 4.27%, down from 4.45% at the end of September and below forecasts of 4.38%.
• Banxico revised its inflation projections from 3.50% to 3.87% for 2024, which remains above the central bank’s 3.00% target (plus or minus 1%). The next decision will be announced on November 9 at 19:00 GMT

Technical Analysis: Mexican Peso appreciates, though USD/MXN could aim higher as golden cross formation looms

The USD/MXN remains neutrally biased, though about to form a golden cross with the 50-day Simple Moving Average (SMA) crossing above the 200-day SMA, each at 17.67 and 17.68, respectively. That could pave the way for further upside. However, buyers need to lift the exchange rate above the 17.70 area, so they can challenge the 20-day SMA at 17.95, ahead of the psychologically 18.00 figure.

On the flip side, key support levels lie at Monday’s low of 17.40, followed by the 100-day Simple Moving Average (SMA) at 17.32. A breach of the latter will expose the 17.00 figure before the pair aims to test the year-to-date (YTD) low of 16.62.