Mexican Peso succumbs to US Dollar after US CPI sparks Fed rate-hike speculations

• Mexican Peso falls 0.75%, as the USD/MXN hovers at around 17.95.
• Mexico's Industrial Production figures show a positive trajectory but fail to curb USD/MXN advance.
• Higher than expected US September CPI data and lower than expected unemployment claims reignites discussions about further Fed rate hikes.

Mexican Peso (MXN) loses ground against the US Dollar (USD) on Thursday after an inflation report from the United States (US) reignited speculations for another interest-rate hike by the US Federal Reserve (Fed). The data overshadowed Mexico’s economic data, which was upbeat but wasn’t enough to cap the USD/MXN advance towards the 17.89 area, posting gains of 0.37%.

Mexico’s Industrial Production rose in August as expected compared with the previous month, while annually it exceeded forecasts and July’s data. Later in the day, the Bank of Mexico (Banxico) will release its latest meeting minutes, in which the central bank held rates unchanged. On the US front, the September Consumer Price Index (CPI) was above estimates and unchanged compared to the previous month's data, implying that the recent slowdown in inflation is halting, while unemployment claims continued to show a solid labor market. The data bolstered the Greenback, and traders should be aware of developments linked to the Middle East conflict. Any escalation could shift market sentiment sour, thus benefiting the US Dollar.

Daily Digest Market Movers: Mexican Peso makes U-turn, depreciating after US CPI

• Mexico's Industrial Production (IP) for August improved by 5.2% YoY, exceeding forecasts of 4.6% and July’s 4.8% increase.
• On a monthly basis, IP in Mexico rose 0.3% as expected but trailed the previous 0.5% reading.
• The US Consumer Price Index increased 3.7% YoY in September, unchanged from August but above forecasts of 3.6%.
• US core CPI dipped as expected to 4.1% from 4.3% in August.
• Initial Jobless Claims in the US for the week ending October 7 came at 209K, below forecasts of 210K.
• The CME Group FedWatch Tool shows expectations for a 25 bps rate hike in December 2023 rose from 26.3% a day ago to 35.7%.
• The September US Producer Price Index (PPI) rose by 0.5% MoM, above estimates of 0.4%, while the core PPI expanded by 0.3%, exceeding forecasts of 0.2%.
• On an annual basis, the PPI rose by 2.2%, above forecasts and August’s figures, of 1.6% and 2%, respectively. The core PPI rate stood at 2.7%, exceeding projections and the prior month’s data.
• Mexico’s Consumer Price Index (CPI) grew by 4.45% YoY in September, slightly below the 4.47% estimated.
• The core CPI inflation in Mexico stood at a stickier 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 weakens as USD/MXN buyers set sight at 18.00

The Mexican Peso depreciated after testing the 200-day Simple Moving Average (SMA) at 17.76, with the USD/MXN pair reaching a weekly low of 17.75. Still, it bounced on the release of US inflation data, towards 17.97, shy of reclaiming 18.00. If the exotic pair achieves a daily close above 18.00, that will form a ‘bullish engulfing’ candlestick pattern, comprised of the price action of Wednesday and Thursday, and could pave the way for further upside. If achieved, the next resistance would be 18.48. Conversely, failure to do it would expose the USD/MXN to selling pressure and challenge the 200-day SMA at 17.76 before testing the 20-day SMA at 17.61.