- Mexican Peso strengthens against US Dollar, with USD/MXN dropping to 16.48 in reaction to upbeat US labor market figures.
- Despite a robust US jobs report, increased risk appetite drives equity gains, a tailwind for the Mexican currency.
- Fed officials maintain a cautious stance on rate adjustments, influencing market expectations for future monetary policy direction.
The Mexican Peso rallied sharply to a nine-year high on Friday after the release of a stronger-than-expected jobs report in the United States (US). Although the USD/MXN trimmed some of its losses at the release, the Peso’s resilience pressured the US Dollar. The exotic pair is currently trading at 16.44, down 0.88% after hitting a daily high of 16.60.
The USD/MXN main driver is an improvement in risk appetite even though US Nonfarm Payrolls (NFP) for March exceeded estimates and the previous month's data. That didn’t stop traders from pushing US equities higher amid a rise in US Treasury bond yields and the US Dollar. Digging deep into the report, unemployment figures dipped, while Average Hourly Earnings were mixed. Monthly figures increased, but in the twelve months to the data, they dipped.
Given the fundamental backdrop, the swaps market suggests the US Federal Reserve will likely cut rates in July 2024. Still, the first “fully” priced-in rate cut is expected in September.
Elsewhere, Federal Reserve officials continued to emphasize that patience is needed and that they’re not in a rush to ease policy. Dallas Fed President Lorie Logan said there’s “no urgency” to cut borrowing costs, adding the risks of cutting too soon are higher than of those being late.
Daily digest market movers: Mexican Peso soars, ignoring upbeat US economic data
- The National Statistics Agency (INEGI) revealed that Mexico’s Auto Exports decreased from 22.6% in January to 4.9% in March. Additionally, Automobile Production in March plunged to a -12.8% reading from a previous 7.8% expansion, fueled by the impact of higher interest rates set by the Bank of Mexico (Banxico).
- Banxico’s minutes highlighted that Deputy Governor Irene Espinosa dissented based on inflation expectations being above the central bank’s target. The central bank lowered rates by 25 bps in March to 11.00%. Despite that, the Governing Council stated that it would remain vigilant about inflation and remain data-dependent in upcoming meetings.
- The US Bureau of Labor Statistics announced March's Nonfarm Payrolls exceeded expectations, with a significant increase of 303K jobs compared to the anticipated 200K and the previous 270K.
- The Unemployment Rate decreased slightly to 3.8% from 3.9% with Average Hourly Earnings meeting consensus predictions.
- Following these figures, the US Dollar strengthened, evidenced by a 0.155% rise in the US Dollar Index (DXY) to 104.36. US Treasury bond yields increased by about 5 basis points, with the 10-year rate reaching 4.365%.
- Recently, Fed Governor Michelle Bowman stated that cutting rates too soon risks a rebound in inflation. She said that eventually, the bank would cut rates, yet inflationary risks are tilted to the upside. Earlier, Richmond Fed President Thomas Barkin described the NFP report as robust but noted that inflation's reduction has been inconsistent.
Technical analysis: Mexican Peso eyes October’s 2015 high
The USD/MXN extended its losses toward the 16.40 region, though bears are gathering momentum with the Relative Strength Index (RSI) moving back below the 35.00 area, opening the door for further gains in the Peso. A breach of 16.43 would expose October’s 2015 low of 16.32, ahead of the 16.00 mark.
On the flip side, If USD/MXN bulls stepped in, they must reclaim 16.70. Once cleared, the next resistance would be the 50-day Simple Moving Average (SMA) at 16.89, with further upside seen at the 100-day SMA at 17.01, ahead of the 200-day SMA at 17.17.
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
EUR/USD extends recovery beyond 1.0400 amid Wall Street's turnaround
EUR/USD extends its recovery beyond 1.0400, helped by the better performance of Wall Street and softer-than-anticipated United States PCE inflation. Profit-taking ahead of the winter holidays also takes its toll.
GBP/USD nears 1.2600 on renewed USD weakness
GBP/USD extends its rebound from multi-month lows and approaches 1.2600. The US Dollar stays on the back foot after softer-than-expected PCE inflation data, helping the pair edge higher. Nevertheless, GBP/USD remains on track to end the week in negative territory.
Gold rises above $2,620 as US yields edge lower
Gold extends its daily rebound and trades above $2,620 on Friday. The benchmark 10-year US Treasury bond yield declines toward 4.5% following the PCE inflation data for November, helping XAU/USD stretch higher in the American session.
Bitcoin crashes to $96,000, altcoins bleed: Top trades for sidelined buyers
Bitcoin (BTC) slipped under the $100,000 milestone and touched the $96,000 level briefly on Friday, a sharp decline that has also hit hard prices of other altcoins and particularly meme coins.
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.