Mexican Peso erases earlier gains and plunges due to political risks

The Mexican Peso falls 0.57% for the week thus far, pressured by upcoming Q3 GDP data expected to show economic deceleration.
Political turmoil deepens as eight Supreme Court judges plan resignations, leaving only three linked to ruling party Morena.
Fears of Trump’s victory in the US election weighed on the Mexican currency.

The Mexican Peso remains on the defensive against the Greenback, extending its losses for three consecutive days as market participants await crucial economic data in Mexico. The release of mixed data in the United States (US), weakened the Mexican currency, which accumulates losses of 0.57% in the week through Tuesday. The USD/MXN trades at 20.07, up 0.2% on Tuesday.

Mexico’s economic docket remains absent, yet it will gather traction on Wednesday. The Instituto Nacional de Estadistica Geografia e Informatica (INEGI) would reveal Q3 2024 Gross Domestic Product (GDP) figures, which are expected to show the economy is decelerating sharply below the Minister of Finance’s goal of 2.4%. GDP is expected to rise 0.8% QoQ above Q2’s reading of 0.2%, though the annual basis is expected to dip from 2.1% to 1.2%.

In the meantime, domestic issues linked to politics and the controversial judicial reform continued to grab the headlines. According to El Financiero, eight of the 11 current Supreme Court judges would submit their resignations, effective until the end of August 2025.

Magistrate Juan Jose Olvera said, “The message is that they will decline to go to the election and will leave the spaces free for the people to decide.” He added that the three Supreme Court judges remaining would be Lenia Batres, Yasmin Esquivel, and Loretta Ortiz, who are linked to the ruling party Morena.

In the meantime, Supreme Court Judge Alfredo Gutierrez Ortiz Mena submitted its resignation to the Senate, stating, “I do not consider myself a suitable candidate for a position that depends on popular support… the function is not to validate the will of the majority, but to safeguard rights.”

Aside from this, the US Department of Labor revealed that Job Openings and Labor Turnover (JOLTS) in September fell to their lowest level in three and a half years, missing analysts' estimates. The Conference Board's Consumer Confidence in October posted its most impressive gain since March 2021.

US elections also pressure the Mexican currency. Jim Reid of Deustche Bank wrote in a note, “The momentum has shifted a reasonable amount over the last couple of weeks as FiveThirtyEight’s model still had Harris having a 54% probability of victory on October 15, but that’s since reversed and now Trump is a 54% probability to win.”

Reid added, “The Republican sweep probability on Polymarket.com was at 28% as recently as October 4 but is now 48% as we type. Over 45 million people have already voted, so one side probably already has some momentum, but we won't of course know who until at least after the polls close next Tuesday night.”

Ahead of the week, Mexico’s economic schedule will feature the release of Gross Domestic Product (GDP) figures for Q3 2024, Business Confidence, and S&P Global Manufacturing PMI.

In the US, the economic docket is expected to reveal jobs data, GDP for the third quarter of 2024 on its preliminary reading, the Fed’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index and Nonfarm Payrolls (NFP).

Daily digest market movers: Mexican Peso tumbles after mixed US data

Mexico’s Retail Sales and Economic Activity data for August were weaker than expected last week, according to INEGI. Alongside this, inflation’s dip in October could open the door for an interest rate cut by the Bank of Mexico (Banxico) at the November meeting.
According to money market futures, Banxico is expected to cut between 175 to 200 basis points over the next 12 months.
US JOLTS for September diminished from 7.861 million to 7.443 million, below estimates of 7.99 million.
The Conference Board (CB) Consumer Confidence in October improved to 108.7 from 99.1, exceeding the forecast of 99.5.
The US Bureau of Economic Analysis will reveal Wednesday's GDP for the third quarter. Estimates suggest the economy grew 3% QoQ.
Data from the Chicago Board of Trade, via the December fed funds rate futures contract, shows investors estimate 49 bps of Fed easing by the end of the year.

USD/MXN technical outlook: Mexican Peso plunges as USD/MXN clears 20.00

The USD/MXN extended its gains but remains capped on the upside by the October 23 high 20.09. Despite this, the uptrend remains intact, and once buyers clear the latter, the next stop would be the YTD high at 20.22, followed by key psychological levels of 20.50 and 21.00.

On the other hand, if sellers reclaim the October 18 low at 19.64, this could pave the way for a challenge to 19.50. The next move would be toward the October 4 swing low of 19.10 before testing 19.00.

Oscillators suggest the USD/MXN uptrend remains intact, as depicted by the Relative Strength Index (RSI). The RSI is bullish and aiming upward.

Mexican Peso FAQs

What key factors drive the Mexican Peso?

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.

How do decisions of the Banxico impact the Mexican Peso?

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.

How does economic data influence the value of the Mexican Peso?

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.

How does broader risk sentiment impact the Mexican Peso?

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.

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