Mexican Peso hits yearly low amid US economic slowdown fears

• Mexican Peso weakens to a yearly low of 19.22 against the USD amid US economic worries.
• Mixed Mexican data: higher unemployment rate, solid but slowing Gross Fixed Investment.
• US Nonfarm Payrolls and Manufacturing PMI disappoint, heightening recession fears.

The Mexican Peso weakened further throughout the week against the Greenback and hit a new yearly low of 19.22, as fears that the United States (US) economy might slow down further hurt the outlook of its largest partner, Mexico. As market participants shifted risk-averse, the USD/MXN trades at 19.00 and gains over 0.70%.

Data from Mexico was mixed as the unemployment rate ticked higher by two-tenths, while Gross Fixed Investment remained solid in May, yet trailed April’s double-digit figures. Even though this could’ve boosted the Peso, market players were aware of the release of July’s US employment report.

The US Nonfarm Payrolls (NFP) plunged below estimates and trailed June’s data, while the Unemployment Rate edged up and Average Hourly Earnings dipped. Today’s data, along with Thursday’s dismal Manufacturing PMI figures revealed by the Institute for Supply Management (ISM), reignited recession worries.

Following the data, traders ditched risk-sensitive assets in the FX space, which hurt the Peso's emerging market status. Besides that, market participants expect the Federal Reserve (Fed) to cut rates for the first time at the upcoming September meeting, and even some Wall Street banks consider 50 basis points (bps) of easing.

Recently, some Fed officials had crossed the wires. Richmond’s Fed President Thomas Barkin disregarded a 50 bps cut, saying the Fed considers this “with an economy that feels like it’s deteriorating rapidly.” At the same time, Chicago’s Fed Austan Goolsbee stated, “They’d never want to overreact to one month’s data.”

Daily digest market movers: Mexican Peso extends its weekly losing streak to three

• Mexico’s Unemployment Rate in June was 2.8% MoM, exceeding estimates and May’s 2.6% reading. Further data showed that Gross Fixed Investment in May dropped from 0.8% to 0.7% MoM.
• Mexico’s S&P Global Manufacturing PMI for July contracted to 49.60, below June’s 51.10 expansion, underscoring the economy’s undergoing a slowdown.
• Given the backdrop, Mexico’s economy is beginning to weaken further, which could be the reason the Bank of Mexico (Banxico) needs to cut rates.
• The US Department of Labor revealed that NFPs came at 114K in July, missing estimates of 175K, with previous figures downwardly revised from 206K to 179K. Additional data showed the Unemployment Rate increased from 4.1% to 4.3%, and Average Hourly Earnings dipped from 0.3% to 0.2%.
• The Fed decided to hold rates unchanged yet commented that goodish inflation data and further weakening in the labor market could trigger action.
• Following the data release, most banks anticipate more aggressive monetary policy easing by the Fed. Bank of America now expects the first rate cut in September instead of December, while Citi and JP Morgan project the Fed will lower rates by 50 bps in September and November.
• Data from the Chicago Board of Trade (CBOT) shows that the December 2024 fed funds rates futures contract suggests that policymakers will ease policy at least 117 basis points.

Technical analysis: Mexican Peso depreciates sharply as USD/MXN rises above 19.00

The USD/MXN rallied sharply above the 19.00 psychological level and hit a new year-to-date (YTD) high of 19.22 before retreating to the figure. The Relative Strength Index (RSI) shows momentum favors buyers, as the RSI stands in overbought territory. But due to the strength of the uptrend, the most extreme reading will be 80.

If USD/MXN extends its gains past the YTD high, up next would be the 19.50 area. Once cleared, the next stop would be the 20.00 mark.

Conversely, a drop below the August 1 low of 18.42 could sponsor a dip toward the 50-day Simple Moving Average (SMA) at 17.99. In further weakness, the exotic pair could challenge the 17.50 mark.