- The Mexican Peso trades lower in its major pairs the day before the Bank of Mexico policy meeting.
- The consensus expectation is for the bank to cut interest rates by 0.25% to 10.50%.
- USD/MXN pulls back from resistance as it steadily climbs within its rising channel.
The Mexican Peso (MXN) trades lower in its major pairs on Wednesday, ahead of the Bank of Mexico (Banxico) September policy meeting on Thursday, which is the main event for the currency this week.
The Peso may be losing ground as the positive effects of the stimulus measures announced by the People's Bank of China (PBoC) which gave emerging market currencies a boost on Tuesday fade. The measures revived the carry trade, which positively benefits the Peso given its relatively high interest rates – the Bank of Mexico's official rate is 10.75%.
Mexican Peso traders await Banxico’s decision
The Mexican Peso weakens against its most heavily-traded peers as traders brace for the Banxico policy meeting on Thursday.
The consensus is for the central bank to cut interest rates by 25 basis points (bps), bringing the official rate down to 10.50% from 10.75% currently.
In a recent survey of 25 economists by Bloomberg, 20 expected a 25 bps cut whilst only one expected no-change.
There is also a growing wild-card bet for a larger 50 bps (0.50%) cut after Mexico’s inflation data, released on Tuesday, registered a deeper-than-expected slowdown in September. Four out of the 25 economists polled by Bloomberg prior to the inflation data expected a 50 bps cut – and this has probably increased after the release.
Data out on Tuesday showed headline inflation (INPC) over the last 12 months fell to 4.66% in Mexico in mid-September, and core inflation (Subyacente) to 3.95%, according to data from The Instituto Nacional de Estadística Geografía (INEGI).
At the same time, a greater-than-expected growth in Mexico’s economic activity data for July suggests Banxico may take a more cautious approach, favoring a 25 bps cut over a 50 bps reduction.
“Earlier figures revealed a 3.8% year-on-year expansion in Mexico's economic activity in July, rebounding from a 0.6% decline in the previous month and surpassing market forecasts of a 1.8% rise. This was the sharpest growth in three months and the third-highest increase this year, potentially providing Banxico with more room to moderate its monetary easing, thus lending support to the Peso,” reported Trading Economics.
At the August meeting, Banxico decided to cut interest rates by 0.25%. The fact that the decision was a close call, with only three members voting for the cut versus two who wanted to keep rates unchanged, further makes it unlikely the central bank will opt for a larger 0.50% reduction.
“The larger-than-expected fall in Mexican inflation in the first half of September, to 4.7% y/y, supports our view that Banxico will continue its easing cycle with another 25bp cut on Thursday,” says Kimberley Sperrfechter, Emerging Markets Economist at Capital Economics in a note on Wednesday.
The market is more dovish, however, arguing a higher risk of a 50 bps cut exists, given it expected 75 bps of easing over the next three months and 250 bp of total easing over the next 12 months, according to Dr. Win Thin, Global Head of Markets Strategy and Brown Brothers Harriman (BBH).
Technical Analysis: USD/MXN pulls back from resistance within rising channel
USD/MXN edged higher on Monday to touch resistance (August 22-23 swing high) at 19.52 before pulling back down. It is now once more rising. Overall, it is in a medium and long-term uptrend within a rising channel.
USD/MXN Daily Chart
There is a possibility USD/MXN has begun a short-term uptrend within the channel. If so, the bias is for higher prices since it is a principle of technical analysis that “the trend is your friend”.
A close above 19.53 (August 23 swing high) on a 4-hour basis would provide bullish confirmation that the pair is in a short-term uptrend.
The 50-day Simple Moving Average is bolstering support at the base of the channel.
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.