Mexican peso settles as traders eye Banxico decision

• The Mexican peso is basically unchanged after hitting a daily high of 19.46.
• Banxico expected to cut rates by 25 bps, but a bigger cut could push USD/MXN towards the 20.00 level.
• Inflation in Mexico continues to fall, raising hopes for further interest rate cuts to stimulate the economy.

The Mexican peso recovered slightly against the US dollar on Thursday after data from the United States (US) suggested the economy was doing well despite the slowdown. Traders’ eyes are on the Bank of Mexico (Banxico) monetary policy decision around 19:00 GMT. USD/MXN is trading at 19.64, basically unchanged.

Mexico’s economic program remains absent, although mixed figures on retail sales and economic activity could prompt Banxico to cut interest rates to stimulate the economy, although it is not in the Mexican central bank’s mandate. Additionally, Tuesday’s inflation report was positive, with headline and core readings continuing to slow in July.

In the last meeting, Banxico’s Governing Council decided to cut interest rates by 25 basis points (bps) from 11.00% to 10.75% in a 3-2 split vote. Governor Victoria Rodriguez and Vice Governors Galia Borja and Omar Mejia supported a reduction. At the same time, Lieutenant Governors Irene Espinosa and Jonathan Heath favored a break in the relaxation cycle.

The question is: How much would Banxico ease policy after the Federal Reserve (Fed) cut rates by 50 basis points? In the latest Bloomberg survey, 20 of 25 analysts priced in a 0.25 percent cut, but four expect a 0.50 percent cut, while one expects the board to keep rates unchanged.

A larger-than-expected rate cut could sponsor a rally in USD/MXN towards the psychological 20.00 mark. Conversely, if Banxico maintains its status quo, it could be positive for the Peso, which could test the 19.50 figure and below.

South of the border, the US program revealed final Gross Domestic Product (GDP) figures for Q2 2024 that were better than expected, while jobs data showed that the number of Americans who applied unemployment benefit was lower than anticipated and also below the level of the previous number.

Meanwhile, Fed speakers went through the news but did not comment on monetary policy.

Daily market reasons: Mexican peso remains firm amid lack of catalysts

• Mexican political unrest is easing as market participants prepare for the change of president on October 1, a bank holiday in Mexico. President-elect Claudia Sheinbaum’s speech will be watched for clues about her economic plan.
• USD/MXN hit and erased previous losses, boosted by dollar recovery.
• Banxico is expected to cut borrowing costs by 175 bps by the end of 2025, according to swap markets.
• The US dollar index (DXY), which tracks the greenback’s performance against a basket of six pairs, is basically unchanged at 100.90.
• Market participants fully priced in a rate cut of at least 25 bps by the Fed. Still, odds for 50 bps of easing are 51.3%, down from 60% odds a day ago, according to the CME FedWatch tool.

USD/MXN Technical Analysis: The Mexican peso is hovering around 19.60

The uptrend remains in place, with USD/MXN still tracking higher, which could happen if it pushes the spot price above the current weekly high of 19.68, opening the door to challenge the September 12 peak at 19.84 before the psychological figure of 20.00. Momentum favors further upside as the Relative Strength Index (RSI) is bullish.

Failure to conquer 19.68 could pave the way for lower prices. The first support would be the 19.50 mark, followed by the September 24 low of 19.23, before the pair heads for the September 18 low of 19.06. Once these levels are exceeded, the 19.00 figure appears as the next line of defense.