Home Forex The Mexican peso closes the week and day high against the US dollar

The Mexican peso closes the week and day high against the US dollar

by SuperiorInvest


  • The Mexican peso appreciated for a seventh straight day, boosted by a soft US dollar after a mixed US jobs report.
  • Banxico's upcoming rate decision was closely watched for muted Mexican inflation data.
  • US Nonfarm Payrolls beat expectations, but revisions and higher unemployment rate fuel speculation of a June Fed rate cut.

The Mexican peso appreciated against for the seventh day in a row on Friday American dollar after a mixed jobs report from the United States raised speculation that the US Federal Reserve will cut interest rates in June. The data pushed the greenback to seven-week lows, a boost for the emerging market currency, which is set to end the week with gains of more than 0.20%. USD/MXN is trading at 16.81, down 0.31%, and should end the week down more than 1.21%.

Mexico's economic chart is empty on Friday, but data revealed during the week could influence the Bank of Mexico's (Banxico) March 21 decision. Gross fixed investment was flat on monthly figures, but fell in the 12 months to December, while consumer confidence was unchanged. However, Thursday's inflation data was the main focus, with the consumer price index (CPI) coming in lower than expected in monthly and annual data, while core CPI was mixed.

Across the border, the US Bureau of Labor Statistics (BLS) revealed a mixed report on US payrolls (NFP). Although the U.S. economy added more jobs than expected, the BLS revised January's numbers downward, while Unemployment rate it jumped close to the 4% threshold.

Daily market roundup: Mexican peso boosted by broad-based US dollar weakness

  • US non-farm payrolls were higher than consensus by 200K in February and rose by 275K. The figures for January were revised from 353 thousand to 229 thousand. Other data underlined that the labor market is cooling as the unemployment rate rose from 3.7% to 3.9%, while average hourly earnings fell in monthly and annual numbers.
  • Earlier, New York Fed President John Williams said the Fed's tight monetary policy had eased demand and underscored the Fed's commitment to price stability. He emphasized that the Fed's decisions are independent of politics and pointed to a strong performance of the economy in 2023.
  • Mexican economic data released this week:
    • Mexican inflation was 4.40% year-on-year, below estimates of 4.42% and January's 4.88%. Month-on-month, the CPI fell from 0.11% to 0.09%.
    • Core CPI rose 4.64%, above forecasts but lower than the previous reading of 4.76%, while the monthly reading was in line with estimates of 0.49%, up from 0.40%.
    • Mexico's consumer confidence index was a seasonally adjusted 47.0 in February. The crude index was 47.1.
    • Mexico's gross fixed investment stagnated in December. However, it fell from 19.2% to 13.4% year-on-year.
  • A Reuters poll shows the Mexican peso will retreat 7% to 18.24 in 12 months from Monday's 16.96, according to the median of 20 FX strategists polled between March 1 and 4. The forecast ranged from 15.50 to 19.00.
  • A Reuters poll shows 15 analysts expect inflation to slow in February, bolstering bets that Mexico's central bank (Banxico) could cut rates as soon as it meets on March 21.
  • Banxico's private analyst poll projections for February have been released. They expect inflation at 4.10%, core CPI at 4.06% and economic growth of 2.40%, unchanged from January. On the monetary policy front, Banxico sees a rate cut to 9.50% and the USD/MXN exchange rate to 18.31 from 18.50.
  • During Banxico's quarterly report, policymakers acknowledged progress in inflation and urged caution against premature interest rate cuts. Governor Victoria Rodriguez Ceja said the adjustments would be gradual, while Vice Governors Galia Borja and Jonathan Heath called for caution. She specifically warned against the risks of an early rate cut.
  • Banxico updated its economic growth projections for 2024 to 2.8% from 3.0%, leaving 1.5% for 2025. The slowdown is blamed on higher interest rates to 11.25%, prompting a shift in three of the five governors Mexico's central bank, which is eyeing the first rate cut at its March 21 meeting.
  • Political race is almost defined in the United States after Super Tuesday. Former President Donald Trump leads Republicans with 995 delegates, short of the 1,215 needed. On the Democratic side, US President Joe Biden leads with 1,497 delegates, which is less than the 1,968 needed.
  • The CME FedWatch Tool shows traders increased their bets on a 25 basis point rate cut in June from 52.7% a week ago to 78%.

Technical Analysis: Mexican peso sees solid gains as USD/MXN hovers around 16.80

USD/MXN's downtrend remains in play after breaking below 17.90 and printing a new yearly low of 16.76. However, sellers must achieve a daily close below 16.80 if they are to test the 2023 annual low of 16.62. Once this barrier is breached, look for the October 2015 16:32 low and the 16:00 threshold.

On the other hand, if buyers reclaim 17.00, it could open the door to a test of the 50-day simple moving average (SMA) at 17:05, followed by the 200-day SMA at 17:23 and the 100-SMA at 17:24.

USD/MXN Price Action – Daily Chart

Frequently asked questions about the Mexican peso

The Mexican peso (MXN) is the most traded currency among its Latin American counterparts. Its value is largely determined by the performance of the Mexican economy, the policies of the country's central bank, the amount of foreign investment in the country, and even the level of remittances sent by Mexicans living abroad, particularly in the United States. Geopolitical trends can also move the MXN: for example, the process of nearshoring – or the decision of some firms to relocate production 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 center in the Americas. 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 keep inflation at low and stable levels (at or near its 3% target, which is the middle of the tolerance band between 2% and 4%). For this purpose, the bank sets a reasonable amount of interest rates. When inflation is too high, Banxico will try 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. Conversely, lower interest rates tend to weaken the MXN.

The release of macroeconomic data is key to assessing the state of the economy and can impact the valuation of the Mexican peso (MXN). A strong Mexican economy based on high economic growth, low unemployment and high confidence bodes well for the MXN. Not only will this attract more foreign investment, but it may encourage the Bank of Mexico (Banxico) to raise interest rates, especially if this force is coupled with increased inflation. However, if economic data is weak, MXN is likely to depreciate.

As an emerging market currency, the Mexican peso (MXN) tends to be bullish during periods of risk, or when investors perceive broader market risks to be low and therefore seek higher risk investments. Conversely, MXN tends to weaken during times of market turbulence or economic uncertainty as investors tend to sell higher risk assets and flee to more stable safe havens.

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