Mexican Peso gains against US Dollar ahead of key FOMC decision

• Mexican Peso edges up 0.50% against the US Dollar as traders await the Federal Reserve's policy announcement.
• Mexico's Q1 2024 GDP growth slows to 1.6% year-over-year, falling short of expectations and the previous quarter's growth rate.
• Mixed US PMI data contrasts with stronger-than-expected ADP employment figures.

The Mexican Peso recovered some ground against the US Dollar on Wednesday as traders braced for a busy economic docket in the United States (US). The highlight of the day would be the Federal Reserve's monetary policy decision and Fed Chair Jerome Powell's press conference. The USD/MXN trades with losses of around 0.50% on the day, at 17.03.

Mexico’s economy is slowing, the Instituto Nacional de Estadistica Geografia e Informatica (INEGI) revealed on Tuesday. The Gross Domestic Product (GDP) for Q1 2024 grew by 1.6% YoY, missing estimates of 2.1% and trailing 2023’s last quarter at 2.5%. On a quarterly basis, the growth rate showed an improvement from 0.1% to 0.2%, exceeding forecasts for no growth.

Across the border, US Purchasing Managers Index (PMI) figures from S&P Global and the Institute for Supply Management (ISM) were mixed. ADP data exceeded estimates, and job openings showed the labor market is cooling.

Daily digest market movers: Mexican Peso appreciates on mixed US data

• Data published in April showed that Mexico’s inflation was mixed. Headline inflation rose, mostly attributed to a jump in Oil prices. Conversely, underlying prices dipped, justifying the Bank of Mexico’s (Banxico) decision to lower rates.
• Although most analysts estimate Banxico will keep rates unchanged at 11.00%, new data could prompt heated discussions among Banxico’s Governing Council members on May 9.
• Last week, Banxico Governor Victoria Rodriguez Ceja said the central bank would be data dependent. However, weak GDP data could lead to a “live meeting” on May 9.
• Citibanamex Survey showed that most analysts expect Banxico to hold rates unchanged at the May meeting. The median foresees a rate cut in June, while they estimate the main reference rate to end the year at 10.00%, up from 9.63% previously.
• Measures of business activity in the US were mixed, as S&P Global Manufacturing PMI came at 50.0, higher than expected but trailing March’s 51.9. Contrarily, the ISM Manufacturing PMI came at 49.2, below estimates of 50.0, and signaling contraction in the sector once again after March’s expansion of 50.3
• ADP Employment Change rose by 192K in April, exceeding estimates of 175K but below March’s 208K upwardly revised figure. Further jobs data showed the JOLTS Job openings fell in March to their lowest level, from 8.813 million to 8.488 million.
• Fed is expected to keep rates unchanged at May 1 meeting, though traders will be eyeing Fed Chair Jerome Powell’s press conference. A hawkish tilt could trigger a jump in favor of the Greenback; otherwise, the USD/MXN could resume its downtrend.
• Data from the Chicago Board of Trade (CBOT) suggests that traders expect the fed funds rate to finish 2024 at 5.100%, up from 5.080% on Tuesday.

USD/MXN technical analysis: Mexican Peso regains control, USD/MXN dives below 200-day SMA

The Mexican Peso trims some of its Tuesday’s losses, as the USD/MXN struggled to crack the 200-day Simple Moving Average (SMA) at 17.17, turning lower toward the 17.00 figure. If sellers push the price below that level, immediate support emerges at the 100-day SMA at 16.94, followed by the 50-day SMA at 16.81 before challenging last year’s low of 16.62.

Conversely, if buyers regain the 200-day SMA, it will pave the way to test the weekly high of 17.24, followed by the January 23 swing high of 17.38, and the year-to-date (YTD) high of 17.92, ahead of 18.00.