- Mexican Peso trims some weekly losses as USD/MXN stays virtually unchanged.
- Mexico’s Industrial Production contracts, underscoring economic challenges, while US producer prices suggest softening inflation.
- Fed officials’ comments on inflation and monetary policy decisions reflect a cautious optimism.
The Mexican Peso depreciated modestly against the US Dollar for the third straight trading session on Thursday, following a red-hot consumer inflation report on Wednesday. Further economic data from Mexico and the United States (US) keeps the exotic pair within familiar levels, though the downtrend remains intact. The USD/MXN trades at 16.43, virtually unchanged.
Mexico’s economic docket featured the release of Industrial Production for February. The monthly reading missed estimates and contracted. On a yearly basis, data expanded below estimates but surpassed January’s reading.
Across the border, the release of prices paid by producers showed that inflation cooled a little but remains stickier than expected on the annual core reading. Monthly readings showed that the disinflation process continues to show success.
In the meantime, Federal Reserve (Fed) officials crossed newswires. The New York Fed’s Williams and Richmond Fed’s Barkin mentioned that recent data was disappointing, while the Boston Fed’s Collins added that recent data argues against the imminent need to change rates.
Daily digest market movers: Mexican Peso shrugs off hot US inflation data
- Mexico’s Industrial Production edged lower in February from the previous month and shrank -0.1% MoM, below estimates of 0.3% expansion. On a yearly basis, Industrial Production rose by 3.3% compared to the last reading, but forecasts were missed by 3.5%.
- This data, combined with the recent inflation report, which is below estimates, justified the Bank of Mexico’s (Banxico) March rate cut. However, not everything was positive news as the yearly CPI exceeded expectations.
- The US Producer Price Index (PPI) rose by 0.2% MoM in March, below the previous month’s reading. The core PPI clocked the same reading of 0.2% MoM, which is below estimates and February’s reading.
- For the twelve months to March, the PPI increased by 2.1%, exceeding February’s data. The core PPI printed above estimates, and the previous reading, at 2.4%, which was above estimates of 2.3% and February’s 2.1%.
- Initial Jobless Claims for the week ending April 6 arrived at 211K, below estimates of 215K and the prior’s reading of 222K.
- Thursday’s data, along with Wednesday’s US inflation report, prompted traders to price in two rate cuts by the Federal Reserve in 2024, according to the Chicago Board of Trade (CBOT). The December 2024 fed funds futures contract depicts it ending the year at 4.975%.
- Federal Reserve officials led by New York President John Williams and Richmond’s Thomas Barkin expressed their disappointment with recent inflation data. Both expressed there’s no need to change policy, given the actual scenario of stickier inflation and robust economic growth.
Technical analysis: Mexican Peso opposes resistance, caps the USD/MXN advance below 16.50
The USD/MXN daily chart depicts the pair consolidating near 16.40, with buyers still unable to crack the current week’s high achieved on Wednesday at 16.52. Once that area is breached, the next supply zone to challenge would be the 16.62 mark, followed by the 50-day Simple Moving Average (SMA) at 16.85 and the 100-day SMA at 16.99.
Failure at 16.50 and the USD/MXN could tumble to October’s 2015 low of 16.32 before retesting the year-to-date (YTD) low of 16.25.
Banxico FAQs
The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican Peso (MXN), and to set the monetary policy. To this end, its main objective is to maintain low and stable inflation within target levels – at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%.
The main tool of the Banxico to guide monetary policy is by setting interest rates. When inflation is above target, the bank will attempt to tame it by raising rates, making it more expensive for households and businesses to borrow money and thus cooling the 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. On the contrary, lower interest rates tend to weaken MXN. The rate differential with the USD, or how the Banxico is expected to set interest rates compared with the US Federal Reserve (Fed), is a key factor.
Banxico meets eight times a year, and its monetary policy is greatly influenced by decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee usually gathers a week after the Fed. In doing so, Banxico reacts and sometimes anticipates monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico did it first in an attempt to diminish the chances of a substantial depreciation of the Mexican Peso (MXN) and to prevent capital outflows that could destabilize the country.
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