Mexican Peso battered by Banxico’s soft tone, Powell’s hawkish comments

• Mexican Peso will remain soft after Banxico’s dovish hold.
• Mexico’s Industrial Production uptrend halted after two months of continuous improvement.
• Federal Reserve Chair Jerome Powell commented that the Fed would not hesitate to adjust monetary policy tighter.

Mexican Peso (MXN) remains on the defensive against the US Dollar (USD), hitting a weekly low of 17.93 as shown by the USD/MXN due to hawkish comments by US Federal Reserve (Fed) Chair Jerome Powell. Additionally, the Bank of Mexico (Banxico) adopting a “less hawkish” stance weighed on the emerging market currency. The exotic pair is trading at 17.79, gaining 0.06% on the day.

Mexico’s economic docket on Thursday witnessed Banxico holding interest rates at 11.25%, justifying that inflation remains high and stating that for “some time” rates would need to stay at current levels. The Mexican central bank language was less hawkish as they said, “In order to achieve an orderly and sustained convergence of headline inflation to the 3% target, the reference rate must be maintained at its current level for some time.” This rephrasing removed the past statement that it would maintain rates “for an extended period.”

Meanwhile, Fed Chair Jerome Powell was hawkish, saying that officials “are not confident” that monetary policy is sufficiently restrictive while adding, "If it becomes appropriate to tighten policy further, we will not hesitate to do so.”

Aside from this, Mexico’s economic docket featured Industrial Production, which surprisingly slowed more than estimates and was poised to remain above the 4% threshold.  On the US front, Consumer Sentiment deteriorated, while inflation expectations ticked to the upside.

Daily digest movers: Mexican Peso drops further as Mexico’s Industrial Production eases

• Industrial Production in Mexico cooled down, revealed the National Statistics Agency (INEGI). The print was 3.9% YoY in September, below the 4.4% forecast and trailing August’s 5.2%.
• The University of Michigan's Consumer Sentiment Index in October decelerated to 60.4, missing forecasts and the previous month’s readings of 63.7 and 63.8, respectively.
• Americans expect inflation to remain higher, as they see prices a year from now up 4.4%, higher than August’s 4.2% and the five-year average  at 3.2%, up from 3%.
• On Thursday, Mexico’s inflation expanded by 4.26% YoY in October, below forecasts of 4.28%, and the previous reading was 4.45%. On a monthly basis, inflation rose 0.39%, slightly above the 0.38% consensus and September’s 0.44%.
• Initial Jobless Claims in the United States for the week ending November 4 rose by 217K, below estimates of 218K and last week’s 220K.
• Fed officials continued to strike mixed signals, as the Philadelphia Fed’s Patrick Harker emphasized that rates must remain higher for longer. On the contrary, Chicago’s Fed Goolsbee turned dovish as he saw risks of overshooting rates.
• Money market futures have priced in a 25 bps rate cut by the Federal Reserve in July 2024.
• Mexico´s economy remains resilient after October’s S&P Global Manufacturing PMI improved to 52.1 from 49.8, and the Gross Domestic Product (GDP) expanded by 3.3% YoY in the third quarter.
• Banxico revised its inflation projections from 3.50% to 3.87% for 2024, which remains above the central bank’s 3.00% target (plus or minus 1%).

Technical Analysis: Mexican Peso is set to plunge further as Golden Cross emerges, USD/MXN extends its gains

The USD/MXN shifted from neutrally biased to neutrally upward biased as buyers emerged from below the 200-day Simple Moving Average (SMA) at 17.67 and lifted the pair more than 1.60% since Thursday's opening. It should be said that the 50-day SMA is above the 200-day SMA, suggesting that a Golden Cross formed a bullish signal. Hence, the pair might gain some steam as buyers have the upper hand, but they must first breach the 20-day SMA at 17.93, putting the psychological 18.00 threshold into play.

Conversely, key support levels lie at the 50 and 200-day SMAs, each at 17.00 and 17.67, respectively, followed by Monday's low of 17.40 and the 100-day Simple Moving Average (SMA) at 17.33. A breach of the latter will expose the 17.00 figure before the pair aims to test the year-to-date (YTD) low of 16.62.