Mexican Peso strengthens amid weak US Initial Jobless Claims

• Mexican Peso extends uptrend, appreciating 0.49% despite hawkish tones from Fed Chair Powell.
• Banxico's Deputy Governor comments on potential inflation pressures from a proposed minimum wage hike.
• US economic indicators show a mixed picture with jobless claims rising and a narrowing trade deficit.

The Mexican Peso extends its winning streak to three consecutive days and appreciates against the US Dollar following the release of weak US jobs data. Traders shrugged off hawkish comments by Federal Reserve (Fed) Chair Jerome Powell, which failed to boost the Greenback. The USD/MXN trades at 20.18, down 0.49%.

Mexico’s economic schedule remains absent, yet Irene Espinosa, Deputy Governor of the Bank of Mexico (Banxico), crossed the wires. She said approving a 12% increase in the minimum wage for 2025 would exert upward pressure on inflation. Espinosa added that she remains open regarding the December 19 monetary policy decision, adding that she would assess whether core inflation continues its downward trend and services inflation remains below 5%.

In the US, the Department of Labor reported that Initial Jobless Claims for the week ending November 30 exceeded forecasts, hinting at a slight deterioration of the jobs market. Other data revealed that October’s trade deficit narrowed, according to the US Bureau of Economic Analysis.

On Wednesday, Powell indicated that the US economy's recent strength allows the Fed to proceed cautiously with interest rate cuts. He noted that the balance between their dual mandate — maximum employment and stable prices — is currently well-aligned, suggesting no urgency for rate reductions.

Ahead this week, Mexico’s schedule will feature the release of automobile production data. The docket will feature Fed speakers and Nonfarm Payrolls (NFP) figures in the US.

Daily digest market movers: Mexican Peso rallies as US Dollar tumbles

• The latest Citi Mexico survey showed that most economists estimate Banxico will cut rates by 25 basis points at the December meeting. Analysts project the economy will grow 1.5% in 2024 and 1% in 2025.
• The US Department of Labor reported that Initial Jobless Claims rose by 9K to 224K for the week ending November 30, exceeding the forecast of 215K. The 4-week moving average reached 218.3K.
• The US Bureau of Economic Analysis announced that October's trade deficit narrowed significantly to $73.8 billion, down from $83.8 billion in September.
• The CME FedWatch Tool suggests that investors see a 70% chance of a 25-basis-point (bps) rate cut at the Fed’s December meeting.
• Data from the Chicago Board of Trade, via the December fed funds rate futures contract, shows investors estimate 19 bps of Fed easing by the end of 2024.
• Banxico’s November survey shows that analysts estimate inflation at 4.42% in 2024 and 3.84% in 2025. Underlying inflation figures will remain at 3.69% in 2024 and 2025. GDP is forecasted at 1.55% and 1.23% for 2024 and 2025, respectively, and the USD/MXN exchange rate at 20.22 for the rest of the year and 20.71 in 2025.
• Fed speakers crossed the newswires. St. Louis Fed President Alberto Musalem said that time might be near to slow or pause rate cuts. Richmond Fed’s Thomas Barkin said that risks for inflation and maximum employment remain balanced.

Mexican Peso technical outlook: USD/MXN drops below 20.30 on Peso’s strength

The USD/MXN has fallen for the third consecutive day and isn’t finding acceptance near the 20.50 figure. In the short term, momentum shifted slightly bearish, with the Relative Strength Index (RSI) piercing below its neutral line. Therefore, the exotic pair might test the 20.00 figure.

If sellers push the exchange rate below the November 19 low of 20.06, the 20.00 mark would be up for grabs. If cleared, the pair will extend its downtrend, challenging the 50-day Simple Moving Average (SMA) at 19.99. A breach of the latter will expose the 100-day SMA at 19.61 before the psychological 19.00 figure.

Conversely, key resistance levels would be exposed if USD/MXN climbs past 20.50. Up next is the year-to-date peak at 20.82, followed by the 21.00 mark. On further strength, the pair will challenge the March 8, 2022 peak at 21.46, followed by the November 26, 2021 high at 22.15.