Mexican Peso stabilizes after weak data and Banxico comments trigger sell-off

• The Mexican Peso steadies after Monday’s depreciation. 
• The Peso suffered after weak Mexican consumer confidence data and central banker comments weighed. 
• US inflation data could cause market volatility if results are unexpected. 

The Mexican Peso (MXN) fell over 1.20% in its most traded pairs on Monday after a combination of weak Mexican Consumer Confidence data for July, dovish comments from Mexico’s central bank governor and rising geopolitical concerns weighed. 

The Peso is seesawing between mild gains and losses during early trading on Tuesday after a tepid Asian session, which saw confidence return to Japanese stocks, with the Nikkei 225 regaining all the losses from last week’s sell-off.    

At the time of writing, one US Dollar (USD) buys 19.00 Mexican Pesos, EUR/MXN trades at 20.75, and GBP/MXN at 24.30.

Mexican Peso falls after weak Consumer data, Banxico comments

The Mexican Peso is trading between mild gains and losses in its key trading pairs on Tuesday as markets return to calm following the dramatic downturns witnessed in the preceding week. 

This comes after the Peso lost over a percentage point against its key rivals on Monday in a turnaround from the three days prior when it saw a run-up. 

Monday’s pull-back may reflect profit-taking ahead of key US inflation data for July, which will be released on Tuesday (today) in the form of Producer Price Index (PPI), which measures the changes in wholesale “factory-gate” prices, followed by the US Consumer Price Index (CPI) data on Wednesday. 

Lower-than-expected inflation in the US will suggest interest rates are coming down more quickly than foreseen, which, in turn, will likely weigh on the US Dollar (USD), pushing USD/MXN down too. The opposite will likely be the case in the event inflation data beat estimates. 

The Peso struggled at the start of the week after the release of Mexican Consumer Confidence data for July revealed a fall from the previous month. Confidence dropped to 46.9 from a five-year high of 47.5 in June, according to data from the Instituto Nacional de Estadistica Geografia e Informatica (INEGI), released on Monday. 

Comments from the Bank of Mexico (Banxico) Governor, Victoria Rodríguez Ceja, to El Financiero revealed she supported the justification for the bank’s surprise decision to cut interest rates by 0.25% to 10.75% at its August meeting. 

Rodríguez Ceja acknowledged that despite headline inflation hitting 5.57%, the decision had been based on core prices decreasing to 4.05% in July, its eighteenth straight month of declines.

“We expect these effects of the shocks that we observe in non-core inflation to be transitory, so we are still expecting headline inflation to return to its target at the same time, at the end of 2025,” Rodriguez Ceja said.

Her tone may suggest the possibility of further cuts to interest rates materializing down the road if core prices continue falling and headline inflation eventually follows suit. This would be expected to probably be negative for the Peso since lower interest rates make it less attractive as a place to park capital by foreign investors. 

Technical Analysis: USD/MXN unfolds correction within downmove

USD/MXN recovers after a protracted fall within a rising channel, as shown on the chart below. 

USD/MXN 4-hour Chart 

The rebound on Monday looks corrective in nature and, although it will probably stretch a final, third, “c” leg higher to complete an ABC correction, the decline from the top of the channel looks unfinished and is likely to resume again until it reaches the lower channel line at around 18.30. A break back below 18.97 (lows of wave “b”) would provide added confirmation of such a resumption, as would a break below 18.77 (August 9 low). 

Such a break lower would probably target 18.35 and the 200-period Simple Moving Average (SMA). The lower channel line will likely provide solid support at roughly 18.30, too.