Mexican peso slips for fourth day as inflation slips toward Banxico target

• Mexican peso extends losses, pressured by inflation still above Banxico’s 2-4% target despite recent declines.
• Economic data shows a deceleration in Mexico’s GDP, indicating the potential for further rate adjustments by Banxico.
• The US dollar strengthened amid strong labor market data and Fed officials signaling potential interest rate cuts in September.

The Mexican peso extended its agony and extended its losses to four straight days against the greenback after data showed inflation was easing; but remains above the Bank of Mexico’s (Banxico) target of 2 to 4 percent. The US dollar appreciates against most currencies amid mixed economic data, however USD/MXN trades at 19.42 and gains 0.81%.

USD/MXN returned to daily lows of 19.24 as the Instituto Nacional de Estadistica Geografia e Informatica (INEGI) revealed that mid-August headline and core inflation eased. This could justify another Banxico adjustment of its key benchmark rate after the August 8 meeting.

Other data showed that the economy is decelerating. Gross Domestic Product (GDP) for the second quarter of 2024 fell annually, but remains above the 2% mark.

Across the border, the US economic record showed that the labor market remains strong despite the cooling. While the S&P Global PMIs were mixed, they showed that the services sector economy remains strong.

Meanwhile, Federal Reserve (Fed) officials went through the news, led by Boston Fed’s Susan Collins. She said it would soon be appropriate to cut interest rates, adding that the labor market remains strong. Echoing her comments was Philadelphia Fed President Patrick Harker, who added that they should ease policy in a slow and methodical approach and support tapering at the next meeting in September.

Before the next day, Banxico will publish the minutes of the August meeting.

Daily Market Reasons: Mexican Peso Depreciates as Economy Remains Warm

• Mexico’s GDP in Q2 2024 was 2.1%, below estimates of 2.2% YoY, but improved from 1.6% growth in Q1.
• Mid-August inflation rose 5.16 percent from a year earlier, below estimates of 5.31 percent and July’s 5.61 percent rise. Core numbers ticked below the 4% mark from 4.02% to 3.98% YoY and below expectations for a 4.06% rise.
• Initial U.S. jobless claims for the week ended Aug. 17 rose by 232,000 and beat expectations of 230,000, compared with a rise of 228,000 the previous week.
• In August, the S&P Global Manufacturing PMI contracted for the second month in a row, from 49.6 to 48.0. The services PMI expanded from 55.0 to 55.2, beating estimates of 54.0.
• US existing home sales rose 1.3%, as expected, in August from 3.9 million to 3.95 million.

Technical outlook: Mexican peso under pressure as USD/MXN climbs towards 19.50

The USD/MXN uptrend remains intact, however traders are facing key resistance. Although momentum favors further upside as depicted by the relative strength index (RSI), the pair needs to clear the psychological figure of 19.50. If this level is breached, the Peso could lose further ground as the exotic pair could target 20.00, followed by the yearly (YTD) high of 20.22.

Conversely, if USD/MXN breaks below 19.00, sellers could enter the market and drive the exchange rate towards the 50-day simple moving average (SMA) at 18.48. Further losses are seen once the pair breaks below 18.00, challenging the 100-day SMA at 17.75.