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Mexican peso weakens against US dollar ahead of US CPI data

by SuperiorInvest


  • Mexican peso extends gains for third session, boosted by central banker's remarks.
  • Governor Banxico's comment on inflation and easing hints at policy changes as MXN gains strength.
  • The NY Fed's one-year consumer inflation expectations remained steady in January.

The Mexican peso (MXN) is erasing earlier gains vs American dollar (MXN) after Bank of Mexico (Banxico) Governor Victoria Rodriguez Ceja crossed the wires. Although US Treasury yields are slightly lower, the Mexican currency has moved into the negative despite Federal Reserve officials (Fed) focusing on easing policy. Still, they pushed for an earlier-than-expected rate cut and strengthened the dollar. At the time of writing, USD/MXN was trading at 17.09, up 0.09%.

The Mexican economic paper included a speech by Governor Banxico Rodriguez, who talked about inflation and the likelihood of easing monetary policy. Across the border, calendar represented the New York Federal Reserve's one-year consumer inflation expectations registered at 3%, unchanged from December.

Daily market roundup: Mexican peso firm ahead of US inflation report

  • In an interview with El Financiero, Banxico Governor Victoria Rodriguez Ceja said inflation is expected to return to its downward trajectory and continue the disinflationary process. She added that despite the increase in the past three months, Mexico's central bank is sticking to its vision of inflation reaching its 3% target in 2025.
  • Rodriguez Ceja added that despite interest rate cuts throughout the year, the bank remains focused on inflation. She added: “The inflationary episode is developing and the situation we are in now is very different from what we are experiencing in 2022, even in the early months of 2023.”
  • Rodriguez Ceja said the bank will make a decision based on various factors and data, including the Fed's decision.
  • Mexico's central bank revised its inflation expectations upward for Q1-Q3 2024, expecting it to approach 3.5% in Q4 based on the latest monetary policy statement.
  • Last Thursday, INEGI revealed that in January, Mexico's Consumer Price Index (CPI) increased by 4.88% year-on-year, while core inflation moderated to 4.76%.
  • Atlanta Fed President Raphael Bostic said the Fed needed to be decisive, adding that it was “laser focused” on inflation. At the same time, Dallas Fed President Lorie Logan noted that rate cuts are not urgent.
  • The US Bureau of Labor Statistics (BLS) will release inflation data on February 13. The Consumer Price Index (CPI) for January is expected to decrease from 3.4% to 2.9% year-on-year. Core CPI is expected to fall from 3.9% to 3.7% on an annual basis.

Technical Analysis: Mexican peso remains firm as USD/MXN remains below 17.10

USD/MXN is neutral to bearish with sellers eyeing a break below 17.00. Relative Strength Index (RSI) studies suggest bears are in charge, but the slope is flattening somewhat. If sellers push prices below 17.05, it could open the door to a test of the 17.00 psychological number. A breach of the latter could pave the way for a challenge to the 2023 low of 16.62.

On the other hand, if buyers claim back the 50-day SMA at 17:11, it may pave the way for a test of the 200-day SMA at 17:29. Upside risks will emerge once this barrier is cleared, with the next bid zone coming in at 17:40, the 100-day SMA.

USD/MXN Price Action – Daily Chart

Frequently asked questions about Banxico

The Bank of Mexico, also known as Banxico, is the country's central bank. Its mission is to preserve the value of Mexico's currency, the Mexican peso (MXN), and to determine monetary policy. To this end, its main objective is to keep inflation low and stable within target levels – at or near its 3% target, which is the middle of the tolerance band between 2% and 4%.

Banxico's main tool for managing monetary policy is setting interest rates. When inflation is above target, the bank tries to tame it by raising rates, making it more expensive for households and businesses to borrow money, thus cooling the 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. Conversely, lower interest rates tend to weaken the MXN. A key factor is the rate differential against the USD, or how Banxico is expected to set interest rates relative to the US Federal Reserve (Fed).

Banxico meets eight times a year and its monetary policy is largely influenced by the decisions of the US central bank (Fed). Therefore, the central bank's decision-making committee usually meets a week after the Fed. At the same time, Banxico responds to and sometimes anticipates monetary policy measures set by the Federal Reserve System. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico was the first to do so in an effort to reduce the chances of a substantial weakening of the Mexican peso (MXN) and prevent capital outflows that could destabilize the country.

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