Mexican Peso soars as consumer confidence drops, US CPI looms

Mexican Consumer Confidence plunges to its lowest since August 2024, yet failed to impact Peso’s performance.
Banxico remains dovish with potential rate cuts on the horizon following recent dips in inflation.
US Dollar finds support from a rise in Treasury yields with the 10-year yield climbing to 4.24%.

The Mexican Peso recovered some ground and posted gains versus the Greenback on Tuesday after Consumer Confidence figures in Mexico deteriorated, while US Treasury bond yields rose. The USD/MXN trades at 20.15, down over 0.38%.

Mexico’s National Statistics Agency revealed that Consumer Confidence hit its lowest level since August 2024, with nine of the ten subcomponents diminishing, according to the national survey.

The latest inflation report on Monday keeps traders optimistic that the Bank of Mexico (Banxico) will lower interest rates at the December 19 meeting. The November Consumer Price Index dipped in headline and core figures, opening the door for expansionary policies by the central bank.

Banxico’s Governor, Victoria Rodriguez Ceja, remained dovish. In her last interview with Reuters, she said that given the progress of disinflation, the central bank could continue lowering borrowing costs.

In November, the US National Federation of Independent Business reported a surge in small business optimism.

Earlier, the USD/MXN climbed, underpinned by the jump in US Treasury bond yields. The US 10-year Treasury yield rose three basis points to 4.24%, a tailwind for the Greenback.

The US Dollar Index (DXY), which tracks the performance of the buck’s value against a basket of six currencies, soars 0.40% to 106.59.

This week, Mexico’s economic docket will feature Industrial Production data. In the US, the Consumer Price Index (CPI), the Producer Price Index, and Initial Jobless Claims data will also entice traders.

Daily digest market movers: Mexican Peso consolidates at around 20.20

Mexico’s Consumer Confidence in November edged down from 49.5 to 47.7, below forecasts of 48.0.
The swaps market suggests Banxico will cut interest rates by 25 basis points at the December 19 meeting.
Mexico’s economic docket revealed that headline and core inflation in November missed estimates, edging lower after the Consumer Price Index hit its highest level of 5.57% in July.
US small businesses grew optimistic about the economy. The index came in at 101.7, exceeding forecasts of 95.3 and 93.7 in October.
Money market futures price in 88% odds that the Fed will lower borrowing costs by 25 basis points this month, according to the CME FedWatch Tool.
Banxico’s November survey shows that analysts estimate Mexican inflation at 4.42% in 2024 and 3.84% in 2025. Underlying inflation figures will remain at 3.69% in 2024 and 2025. GDP is forecast at 1.55% and 1.23% for 2024 and 2025, respectively, and the USD/MXN exchange rate at 20.22 for the rest of the year and 20.71 in 2025.

Mexican Peso technical outlook: USD/MXN remains firm below 20.30 on Peso strength

The USD/MXN consolidates at around the 20.10-20.30 area for the fourth consecutive day, slightly above immediate support seen at the 50-day Simple Moving Average (SMA) at 20.00. The Relative Strength Index (RSI) depicts momentum shifted to the downside in the near term, which could pave the way for further downside.

In that outcome, if USD/MXN drops below 20.00, the next support would be the 100-day SMA at 19.61 before testing the psychological 19.50 mark, ahead of the 19.00 figure.

Conversely, if USD/MXN soars above the December 6 high of 20.28, that could pave the way to challenge 20.50, ahead of the year-to-date peak at 20.82, followed by the 21.00 mark.

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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