Mexican Peso continues to outshine the US Dollar amid Fed dovish comments, US PPI

• Mexican Peso four-day rally keeps the USD/MXN pair trading below 18.00, near the 200-day SMA.
• Mexico’s currency strengthens on speculations about the US Federal Reserve as officials disregard a pending rate hike.
• US Producer Price Index exceeds estimates: A precursor to Thursday’s CPI?

Mexican Peso (MXN) extends its rally versus the Greenback (USD) for a fourth consecutive day amid speculations the US Federal Reserve (Fed) might skip the supposedly “last” rate hike, as shown by the latest Fed monetary policy “dot-plots.” Meanwhile, economic data from the United States (US) limited the USD/MXN downtrend, which exchanges hand at around 17.82, registering losses of more than 0.50% on the day.

Mexico’s economic calendar is empty, but USD/MXN traders are getting cues from the US. The US Bureau of Labor Statistics (BLS) revealed that prices paid by producers rose above estimates, although the headline Producer Price Index (PPI) MoM slowed compared to August data. Other readings were higher than the previous month, which could open the door for an uptick on consumer side inflation, to be revealed on Thursday. In the meantime, Fed Governor Michelle Bowman, the dissident amongst Fed officials during the week, emphasized that rates must rise further as “Inflation remains well above the FOMC's 2% target.”

Daily Digest Market Movers: Mexican Peso gains more than 1% as the Greenback continues to weaken

• Mexican Peso remains bolstered by a risk-on impulse despite the ongoing escalation of the Israel-Hamas conflict.
• The September US Producer Price Index (PPI) rose by 0.5% MoM, above estimates of 0.3%, while core PPI expanded by 0.3%, exceeding estimates of 0.2%.
• Annually based, the PPI rose by 2.2%, above forecasts and August’s figures, of 1.6% and 2%, while the core PPI rate stood at 2.7%, exceeding projections and the prior month’s data.
• Fed Governor Michelle Bowman: As inflation remains above the FOMC’s target, “This suggests that the policy rate may need to rise further and stay restrictive for some time to return inflation to the FOMC's goal.”
• Mexico’s Consumer Price Index (CPI) grew by 4.45% YoY in September, below the 4.47% of estimates.
• The core CPI inflation in Mexico stood stickier at 5.76% YoY, as widely estimated, but has broken below the 6% threshold.
• The Bank of Mexico (Banxico) held rates at 11.25% in September and revised its inflation projections from 3.5% to 3.87% for 2024, above the central bank’s 3% target (plus or minus 1%).

Technical Analysis: Mexican Peso lurking around the 200-day Simple Moving Average at 17.77

Mexican Peso appreciated during the week as the USD/MXN has dived more than 3%, below the 18.00 figure, with sellers targeting the 200-day Simple Moving Average (SMA) at 17.77. A breach of the latter will expose the 20-day SMA at 17.57 before challenging the low seen on September 30 at 17.34. If USD/MXN sellers break that level, the pair will shift to a neutral-downward bias. On the flip side, buyers must reclaim the 18.00 figure for a bullish continuation.