The Mexican peso held steady on Tuesday

VaselineAugust 13, 2024

0 3 minutes read

The Mexican peso was flat on Tuesday after rallying 1.2% on Monday.
Banxico recently offered a rate cut despite a rise in headline inflation numbers.
Mexico’s central bank expects rising inflation to moderate.

The Mexican peso (MXN) was almost flat on Tuesday, paddling around 19:00 as peso traders find their balance after a 1.2% drop in the MXN against the greenback. The Bank of Mexico (Banxico) recently cut interest rates by a quarter of a point, despite a rise in headline inflation.

US Producer Price Index (PPI) figures released on Tuesday showed that business inflation eased in July, dampening the greenback and giving the peso a foothold as markets focus on expectations of a September rate cut.

Daily Market Motifs: Peso-Dollar Tug Continues After USD Lowers on PPI Cut

US PPI inflation for the year ended July fell to 2.2%, below the forecast of 2.3%, while the previous period was revised to 2.7% from 2.6% initially.
Core US PPI inflation fell to 2.4% from 2.7% expected, further down from the previous 3.0%.
Rate markets increased bets on a double rate cut from the Federal Reserve (Fed) in September after Tuesday’s PPI print.
According to CME’s FedWatch tool, rate markets are pricing in around 55% odds of a 50 basis point cut on September 18, with a 45% chance of at least a 25bps cut.
Key US data will continue through the week, with July’s Consumer Price Index (CPI) due to be printed on Wednesday. Investors expect inflation figures to continue to decline.

Economic indicator

Producer Price Index (annual)

The producer price index, published by the Bureau of Labor Statistics, Department of Labor, measures average price changes in US primary markets by producers of goods in all processing states. PPI changes are widely watched as an indicator of commodity inflation. Generally, a high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or bearish).

Mexican peso price forecast: peso bulls look for a floor

The Mexican peso (MXN) is struggling with the 19.00 handle as USD/MXN traders try to keep the pair pinned. Greenback bidders are struggling to find the gas pedal on a negative dollar Tuesday, giving the peso a chance to extend short-term gains.

USD/MXN hit a 22-month high above 20.00 last week, but the Peso bulls are back in full swing, posting a 6.44% peak-to-low recovery. The pair remains firmly fixed above the 200-day EMA at 17.59, and a firm pattern of higher lows reinforces technical support in favor of the Greenback.

USD/MXN Daily Chart

Frequently asked questions about the Mexican peso

The Mexican peso (MXN) is the most traded currency among its Latin American peers. Its value is largely determined by the performance of the Mexican economy, the policy of the country’s central bank, the volume of foreign investment in the country, and even the level of remittances sent by Mexicans living abroad, especially in the United States. Geopolitical trends can also move the MXN: for example, nearshoring – or the decision by some firms to relocate production capacity and supply chains closer to their home countries – is also seen as a catalyst for the currency Mexican, as the country is considered a key manufacturing hub on the American continent. Another catalyst for the 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, the midpoint in a tolerance band of 2% to 4% ). For this purpose, the bank sets an appropriate level 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 reducing 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.

Macroeconomic data is essential to assess 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 is good for the MXN. Not only does it attract more foreign investment, it can encourage the Bank of Mexico (Banxico) to raise interest rates, especially if this force is associated with increased inflation. However, if economic data is weak, the MXN is likely to depreciate.

As an emerging market currency, the Mexican peso (MXN) tends to struggle during periods of risk, or when investors perceive broader market risks to be low and are therefore willing to commit to investments that carry more risk. great. Conversely, MXN tends to weaken during periods of market turbulence or economic uncertainty as investors tend to sell riskier assets and flee to more stable safe havens.

VaselineAugust 13, 2024

0 3 minutes read