Mexican Peso Recovers After Banxico Minutes, Sheinbaum Justifies US Finances

• The Mexican peso is recovering after the release of fairly benign Banxico minutes improved the outlook.
• President Sheinbaum sends an envoy to meet with the “kings” of American finance: Dimon and Fink.
• USD/MXN tops and retreats after its mini-rally runs out.

The Mexican peso (MXN) rose in its most traded pairs on Friday, picking up momentum from the previous day’s recovery, when it found a level and rose after the release of the minutes of the Bank of Mexico (Banxico) meeting.

In their discussions, Banxico officials painted an overall benign picture of the Mexican economy, with inflation “improving,” a “stable” labor market and strong export demand, but also a loss of “dynamism” and “productive activity ” in the internal environment. economy.

The peso could gain further support as political risks ease following meetings with the CEOs of US financial giants JP Morgan Chase and Blackrock and turn to the US election.

Mexican peso rises after publication of Banxico Minutes

The Mexican peso appreciated following the publication of the minutes of Banxico’s September meeting on Thursday, where the bank decided by a majority vote to cut the overnight interbank rate target by 25 basis points (bps) to 10.50%. There was one dissenter, Jonathan Ernest Heath Constable. Below are ten key takeaways from the minutes:

• Most noted that Mexico’s inflation outlook has improved.
• Headline and core forecasts have been adjusted slightly downward for some near-term quarters.
• In the last reading, food inflation was 3.95%, while non-food inflation was 1.69%, in both cases well below their respective historical averages.
• Inflation for all agreed services continues to show persistence.
• The balance of risks to the expected trajectory of inflation over the forecast horizon remains tilted to the upside.
• All members indicated that the labor market remains strong.
• The government bond yield curve showed downward movements, especially at short maturities.
• Most saw a decline in consumption of imported goods, while the value of manufacturing exports – both auto and non-auto – saw some recovery in July.
• All agreed that domestic productive activity is going through a period of weakness, and most agreed that there has been a noticeable loss of dynamism since the last quarter of 2023.
• Information available for the start of the third quarter shows some recovery in domestic demand.

The Sheinbaum Administration is Suing American Investors

Despite investor concerns about the political outlook for Mexico after the Morena-led coalition’s victory in June, there appear to be signs that the new Sheinbaum administration is trying to build bridges with some of the big players in global finance.

On Thursday, Mexican Finance Secretary Rogelio Ramírez de la O met separately with Blackrock CEO Larry Fink and JP Morgan Chase CEO Jamie Dimon, reports El Financiero. While details of the meetings have not been made public, the move could be interpreted as part of a charm offensive by the Mexican government to win back investor confidence.

“Before the election turmoil, Dimon said last November that he saw a ‘huge’ opportunity in Mexico amid a boom in factories moving to the country to be closer to the United States as part of a trend of business known as nearshoring,” said. El Financiero.

Perhaps of greater concern to investors now is the outcome of the US presidential election in November. JP Morgan strategists downgraded their bullish stance on the Mexican peso due to risks of a “highly unpredictable” outcome of the US presidential election.

Technical Analysis: USD/MXN retreats after peaking

USD/MXN bottomed out at the bottom of its long-term bullish channel and recovered on October 4th. However, the emerging uptrend reversed after peaking at 19.62 on Thursday. Prices are now falling back towards the base of the channel and the 50-day simple moving average (SMA) again.

USD/MXN Daily Chart

That said, USD/MXN’s new short-term uptrend is likely still intact and prices may yet recover and continue to move higher in the ascending channel. Additionally, the medium and long-term trends remain bullish and given the principle of technical analysis that “the trend is your friend”, this favors an eventual continuation higher when longer up cycles are launched.

A break above the 19.62 high would see USD/MXN resume the uptrend and continue until the next target at 19.83 (October 1 high).

A break below 19.31 (October 9 low), however, would be a bearish sign indicating the possibility that the short-term uptrend may have ended and either a sideways or more bearish trend could develop.