Mexican peso rises as inflation beats estimates, Banxico decision looms

• Mexican peso accelerates on high inflation data.
• Market participants were divided on Banxico’s next move: keeping or cutting rates.
• US Jobless Claims Come In Below Consensus, But Peso Resists USD Strength.

The Mexican peso rose in early trading in the North American session on Thursday after the Instituto Nacional de Estadistica Geografia e Informatica (INEGI) revealed that the Consumer Price Index (CPI) in July rose above estimates ahead of the Bank of Mexico’s monetary rate ( Banxico). political decision. USD/MXN is trading at 19.15, down 0.70%.

Inflation in Mexico rose to the highest level in more than a year, INEGI revealed, sponsoring a dip in the exotic USD/MXN pair as traders brace for Banxico’s decision at around 19:00 today GMT. However, the core figure used mostly by policymakers as the main reference for inflation ticked lower.

Given the context, market players are divided between Banxico keeping rates under control, watching inflation data or opting for a discount. During the last meeting, Lt. Governor Omar Mejia Castelazo was the most outlier in a 4-1 vote to keep rates at 11.00%. It’s worth noting that Governor Victoria Rodriguez Ceja later said rate cuts would be “on the table” in subsequent meetings.

According to swaps, market players expect 50 basis points of easing in the next three months and 175 bps in the next 12 months.

Across the border, the number of Americans who filed for unemployment benefits fell below consensus, strengthening the Green Bill. So far, it has been ahead of most G7 currencies, but has failed to gain traction against the Mexican peso.

Wall Street rallied in relief that the labor market is not in a bad position. This follows last week’s initial jobless claims report followed by dismal non-farm payrolls (NFP) numbers.

Daily Market Reasons: Mexican Peso Rally Ahead of Banxico Meeting

• Mexico’s inflation rate rose 1.05% month-on-month, beating estimates of 1.02% and crushing June’s 0.38%. In the 12 months to July, it rose from 4.98% to 5.57%, as predicted.
• Core prices rose 0.22% to 0.32% monthly, above economists’ forecasts of 0.29%. However, on an annual basis, inflation missed the consensus of 4.02% but eased to 4.05%, improving from June’s 4.13%.
• Societe Generale expects Banxico to keep rates unchanged due to the depreciation of the Mexican peso at 20.00 pesos per US dollar following the NFP data. They noted that this “could be counterproductive to restoring stability and should be postponed.”
• Mexico’s industrial production is expected to fall on Friday, which could put Banxico at a crossroads as headline inflation rises while the economy stagnates.
• Initial US jobless claims for the week ended August 3 fell from 250,000 to 233,000, below forecasts of 240,000. Continuous claims through July 27 rose from 1,869,000 to 1,875,000, beating the forecast of 1,870,000.
• Banxico’s decision should weigh on USD/MXN and the Fed. The CME FedWatch tool puts the odds of a 50 basis point Fed rate cut at the September meeting at 57.5%, down from 63.5% a day ago.

Technical analysis: Mexican peso sinks as USD/MXN hovers around 19.10

USD/MXN slips to four-day lows of 19.08 as traders begin to price in Banxico keeping rates unchanged, breaking above key support levels as the pair accelerated to the psychological 19.00 mark. Momentum remains in favor of the buyers, but in the short term, the Relative Strength Index (RSI) shows that the sellers have the upper hand.

If USD/MXN breaks below 19.00, the next support would be the July 31 high at 18.94, before falling to the August 1 low of 18.42. Once offset, further losses await, with the 50-day simple moving average (SMA) rising to 18.26.

Conversely, if USD/MXN climbs above 19.50, the next resistance would be 20.00. A decisive break will expose the YTD high at 20.22, followed by the 20.50 mark.