The Mexican peso was supported by US CPI which met expectations but nothing more

VaselineAugust 14, 2024

0 3 minutes read

The Mexican peso was supported by US CPI which met expectations but nothing more

The Mexican peso posted a second day of gains against the greenback on Wednesday.
Mexico’s recent interest rate cut, despite rising inflation, has left peso markets in a tailspin.
US CPI numbers eased to expected levels, but investors were hoping for more post-PPI.

The Mexican peso (MXN) found additional space on Wednesday, supported by the US dollar (USD), after US Consumer Price Index (CPI) inflation numbers fell to expected levels. However, markets were hoping for firmer signs of easing inflationary pressure after this week’s US producer price index (PPI) showed a steeper-than-expected decline in business price growth.

Mexico continues to face inflation pressures of its own, but the Central Bank of Mexico (Banxico) made a recent interest rate cut anyway. Banxico Governor Victoria Rodriguez Ceja cited an 18-month straight decline in core price inflation as the impetus for a quarter-point rate cut earlier this week, saying a rise in headline inflation to nearly 5.6 percent would should be phased out “at the end of 2025”.

Daily Market Reasons: Weird Expectations Give Weird Market Flows After US CPI

US CPI inflation came in largely as markets expected, with core CPI inflation easing to 3.2% year-on-year from 3.3% previously.
Both headline and core CPI ticked up 0.2% on the month, also as expected.
Annualized CPI also fell to 2.9% in July, below the expected 3.0%.
Despite the continued fall in annual CPI inflation numbers, investors were generally expecting a more significant drop after this week’s US PPI inflation print showed a sharper decline in upstream cost increases. However, downward cost pressures do not appear to be being passed on to consumers as quickly as many had hoped.

Mexican peso price forecast: The peso is still struggling to find a recovery despite the near-term reprieve

The Mexican peso (MXN) rallied around nine-tenths of one percent against the greenback on Wednesday, pulling USD/MXN below 19.00 before reaching a technical level near 18.80. The peso recovered more than 6% after hitting a 22-month low against the US dollar, which sent USD/MXN above the 20.00 level earlier this month.

Despite a short-term recovery in peso bids, USD/MXN still leans heavily in favor of dollar buyers as the pair trades north of its 200-day exponential moving average (EMA) at 17.59. Also, the pair is still up nearly 16% from year lows of 16.26.

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, 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 14, 2024

0 3 minutes read