Peso Surges: Poised for Weekly Gains Ahead of Fed
- Mexican Peso Climbs Higher, USD/MXN Takes a Dive Below 19.90 – Down Over 1%!
- Peso Defies Gloomy Economic News: Shrugs Off Weak Mexican Industry and Wobbly Consumer Confidence. Recession Fears Persist.
- US Consumer Mood Sinks as Inflation Worries Spike: Trump’s Tariff Plans Add to the Gloom.
The Mexican Peso (MXN) showed its strength against the US Dollar (USD) this Friday, seemingly ignoring worrying economic signals that emerged throughout the week. These signals suggested Mexico’s economy might be hitting the brakes. Meanwhile, in the US, a slump in consumer confidence put pressure on the Greenback, setting it up for a losing week. Currently, you’ll see USD/MXN trading around 19.86, a drop of more than 1%.
Overall, market sentiment turned positive, giving a boost to the Peso and other emerging market currencies. However, back in Mexico, the latest Consumer Confidence and Industrial Production reports paint a less rosy picture of the economy. This cautious outlook was echoed by Banco de Mexico (Banxico) Economic Research Director, Alejandrina Salcedo Cisneros.
Cisneros mentioned that uncertainty is casting a shadow over Mexican businesses, suggesting that regional economies might only see modest growth. Banxico’s own estimates point to economic contraction across all regions of the country. Looking at the national picture, the economy shrank by 0.6% in the last quarter of the year (Q4) compared to the previous quarter, using seasonally adjusted numbers.
Across the border in the US, the University of Michigan (UoM) Consumer Sentiment Index delivered a surprisingly weak result. At the same time, concerns about rising prices grew as people anticipated the impact of US President Trump’s upcoming tariffs.
Looking ahead, traders are eagerly awaiting next week’s Federal Reserve (Fed) policy announcement. Just last Friday, Fed Chair Jerome Powell pointed out that “market measures of inflation expectations have ticked upwards, largely due to tariffs.”
For the week ahead, market watchers will be closely scrutinizing Retail Sales figures, housing market data, and of course, the Fed’s monetary policy decisions and their latest economic forecasts.
Market Movers – Daily Digest: Mexican Peso Roars as the US Dollar Loses Steam
- Mexico’s factory output takes a bigger hit than expected: Industrial Production plunged 2.9% year-over-year, worse than December’s 2.7% decline. This, combined with weaker consumer confidence, suggests the Mexican Peso might weaken – despite its recent rally which seems mostly driven by a generally weaker US Dollar.
- Economists at Banco de Mexico (Banxico) believe Mexico’s economy is slowing down faster than previously thought. Private analysts polled by Banxico now predict growth of just 0.81%.
- With inflation easing and the economy struggling, many anticipate Banxico will continue to lower interest rates at their upcoming March 27th meeting.
- On Wednesday, Mexican Finance Minister Edgar Amador Zamora acknowledged that while the economy is still growing, there are signs of a slowdown, which he linked to trade tensions with the US.
- The University of Michigan (UoM) Consumer Sentiment survey revealed a significant drop in March, falling from 64.7 to 57.9, missing the 63.1 forecast. Alarmingly, people’s expectations for inflation jumped, with Americans anticipating a rise from 4.3% to 4.9% for the next 12 months. Over a five-year horizon, consumers expect prices to increase by 3.9%, up from 3.5%.
- Interest rate futures markets are now pricing in less aggressive rate cuts from the Fed this year. Traders had anticipated 67 basis points of easing by year-end, down from 74 just the day before.
- A Reuters survey revealed that the majority of economists – 70 out of 74 – believe the risk of recession has increased in the US, Canada, and Mexico.
- Trade disputes between the US and Mexico are still center stage. If the countries can reach a trade agreement, it could pave the way for a Mexican currency comeback. However, if disputes continue and the US imposes tariffs, the USD/MXN could climb higher as US tariffs risk triggering a recession in Mexico.
USD/MXN Technical Picture: Mexican Peso Jumps as USD/MXN Plummets Below 20.00
USD/MXN finally broke below the key 20.00 level, hitting its lowest point in four months at 19.84 earlier today during the North American trading session. The momentum clearly favors further declines for the pair, as seen in the Relative Strength Index (RSI), which has turned bearish and moved into oversold territory. This suggests the path of least resistance for USD/MXN is still downwards.
Looking at support levels, the first potential floor for USD/MXN is the 200-day Simple Moving Average (SMA) at 19.67. If this level is breached, the next likely stop would be the 19.50 mark, followed by the September 18 swing low of 19.06. On the flip side, for a bullish reversal to take hold, USD/MXN would first need to overcome the 20.00 level. A solid break above 20.00 could then open the way to the 100-day SMA at 20.35.
Banxico FAQs
The Bank of Mexico, or Banxico as it’s also known, is the central bank for Mexico. Its main job is to keep the Mexican Peso (MXN) stable and valuable, and to manage monetary policy for the country. Essentially, Banxico aims to keep inflation low and steady, targeting around 3%, which is the middle point of their preferred range of 2% to 4%.
Banxico’s primary weapon in controlling monetary policy is setting interest rates. If inflation gets too high, they’ll try to bring it down by raising interest rates. This makes borrowing more expensive for people and businesses, which in turn cools down the economy. Higher interest rates are usually good news for the Mexican Peso (MXN) because they mean better returns for investors, making Mexico a more attractive place to invest. Conversely, lower interest rates tend to weaken the MXN. The difference in interest rates compared to the US Dollar, or how Banxico is expected to set rates compared to the US Federal Reserve (Fed), is a crucial factor for the Peso.
Banxico holds policy meetings eight times a year, and their decisions are heavily influenced by what the US Federal Reserve (Fed) does. Therefore, Banxico’s monetary policy committee usually meets about a week after the Fed. This allows Banxico to react to, and sometimes even get ahead of, the monetary policy moves made by the Federal Reserve. For example, after the Covid-19 pandemic hit, Banxico actually raised interest rates *before* the Fed did, trying to reduce the risk of the Mexican Peso losing too much value and to prevent investors from pulling their money out of the country, which could have destabilized the Mexican economy.
