Mexican Peso slips as US Dollar rises on hawkish Fed comments

• USD/MXN climbs more than 1%, fueled by strong US economic indicators.
• Minneapolis Fed President Neel Kashkari hints at continued rate hikes, expects only two cuts in 2024.
• Upcoming US PCE data and Mexico's General Elections poised to impact USD/MXN pair.

The Mexican Peso weakened against the US Dollar on Tuesday as the financial markets resumed trading at full strength. A light economic calendar in Mexico keeps traders leaning on the dynamics of the Greenback, which was boosted by hawkish Fedspeak along with renewed optimism from American consumers. The USD/MXN trades at 16.81, gaining 1.05%.

Minneapolis Fed President Neel Kashkari grabbed the headlines during the day by saying that he doesn’t think anyone has taken rate increases off the table, adding that he’s penciling no more than two cuts for 2024. Data-wise, the Conference Board (CB) Consumer Confidence improved in May, yet recession fears reignited.

Dana M. Peterson, Chief Economist at The Conference Board, noted, “The survey also revealed a possible resurgence in recession concerns. The Perceived Likelihood of a US Recession over the Next 12 Months rose again in May, with more consumers believing the recession is ‘somewhat likely’ or ‘very likely.’”

Despite that, the US Dollar was boosted by the jump in US Treasury bond yields, with the 10-year note yield rising five-and-a-half basis points to 4.522%, while the US Dollar Index (DXY) remained unchanged at 104.50.

Meanwhile, traders brace for the release of April’s Personal Consumption Expenditures Price Index (PCE), the Federal Reserve’s (Fed) preferred inflation gauge. That, along with Mexico’s General Elections on Sunday, could dictate the USD/MXN path toward the second half of the year as the Mexican currency remains one of the strongest against the US Dollar.

Daily digest market movers: Mexican Peso retreats on Fedspeak; high US yields

• Last week’s data showed that Mexico’s economic outlook is turning uncertain as the mid-month headline inflation for May rose while underlying prices dipped.
• Mexico’s economic slowdown, as shown by the last Gross Domestic Product (GDP) report and a widening trade deficit, could exert pressure on Mexican Peso.
• May’s Citibanamex poll showed that most economists estimate Banxico will cut rates on June 27 from 11% to 10.75%. The median expects headline inflation at 4.21% and core at 4.07% in 2024.
• Mexico’s schedule will feature the Unemployment Rate, the Fiscal Balance, Foreign Exchange Reserves, and General Elections on June 2.
• US Conference Board Consumer Confidence improved in May after three months of declines. It came at 102.0, up from 97.0, and exceeded estimates of 95.9.
• In the week ahead, the US economic docket will feature the second estimate of Gross Domestic Product (GDP) for Q1 2024, unemployment claims for the last week and the release of core PCE.
• Despite that, fed funds rate futures estimated just 25 basis points of easing toward the end of the year after S&P Global revealed that US business activity is gathering steam.

Technical analysis: Mexican Peso falls as USD/MXN climbs above 16.75

The USD/MXN downtrend remains intact, yet buyers are gathering steam, as the pair tests the 100-day Simple Moving Average (SMA) at 16.76. Momentum shows that bulls are gaining traction, as the Relative Strength Index (RSI) is about to pierce above the 50-midline to turn bullish.

Buyers decisively surpassing the 100-day SMA at 16.70 could open the door for further gains. The next resistance would be the 50-day SMA at 16.89, the psychological figure at 17.00, and the 200-day SMA at 17.14.

On the other hand, a bearish continuation would happen if sellers keep the exchange rate below the 100-day SMA, which could pave the way for a dip to the 2023 low of 16.62, followed by the May 21 cycle low at 16.52 and the year-to-date low of 16.25.