Mexican Peso weakens against the US Dollar ahead of US CPI release

• Mexican Peso slides vs. the US Dollar ahead of a busy week for Mexico and the United States.
• Mexico’s economic docket will feature Industrial Production and the Bank of Mexico's monetary policy decision.
• USD/MXN traders are awaiting the US inflation report alongside the Federal Reserve’s decision.

Mexican Peso (MXN) starts the week with a negative tone and loses traction against the US Dollar (USD) in early morning trading during the North American session. The economic docket during the week across both sides of the borders will feature monetary policy decisions by the US Federal Reserve (Fed) on Wednesday and the Bank of Mexico (Banxico) on Thursday. Both central banks are expected to keep rates unchanged despite uncertainty about the Fed’s tone on their monetary policy statement. The USD/MXN is trading at 17.43, posting gains of 0.60% on the day.

Last week’s economic data from Mexico depicted the disinflation process continuing at a time when some of Banxico’s Governors had opened the door to ease monetary policy. However, they stressed that discussions will begin in the first quarter of 2024. On the US front, a tight labor market led to decreasing expectations for rate cuts by the Fed next year.

Daily digest movers: Mexican Peso trades with losses at the beginning of a busy week

• Mexico’s inflation on the producer and consumer side diverged. However, prices continue to ease, increasing the chances for rate cuts by Banxico, as Governor Victoria Rodriguez Ceja and Deputy Governor Jonathan Heath have suggested.
• Nevertheless, there is a dissenter as Deputy Governor Irene Espinosa pushed back and said inflationary risks are growing.
• China’s latest Consumer Price Index (CPI) report paints a deflationary scenario in the second-largest economy worldwide, spurring flows toward safe-haven currencies.
• The US Dollar Index (DXY) is bolstering the USD/MXN pair, with the DXY gaining 0.10%, up at 104.09, underpinned by elevated US Treasury bond yields.
• The US 10-year benchmark note rate is up three basis points at 4.262%.
• US jobs market data was mixed, indicating the labor market is cooling down at a slow pace. Following last week’s US Nonfarm Payrolls report for November, traders slashed the odds for potential rate cuts by the US Federal Reserve for next year.
• Ahead in the week, Mexico’s economic docket will feature Industrial Production for October and Banxico’s monetary policy decision on December 14.
• On the US front, inflation figures on the consumer and producer side will be released ahead of the Federal Reserve’s last decision of the year. After that, the unemployment claims, Industrial Production, and Fed Regional Manufacturing Indices will be released.

Technical analysis: Mexican Peso on the defensive as USD/MXN climbs towards 17.50

The USD/MXN daily chart shows the pair is gathering upward momentum, above the 100-day Simple Moving Average (SMA) at 17.39, which could pave the way for further upside. Nevertheless, buyers must reclaim the 17.50 psychological figure so that the exotic pair can challenge the 18.00 mark. On its way toward the latter, buyers must regain the 200-day SMA at 17.54, followed by the 50-day SMA at 17.67.

Contrarily, if USD/MXN sellers drag prices below the 100-day SMA, they could remain hopeful the pair could slump further. The first support would be the 17.00/05 area, before challenging the current current’s year low of 16.62.