Mexican Peso climbs against US Dollar following Banxico decision, US inflation data revision

• USD/MXN drops as revised US inflation data fuel expectations for Fed easing.
• US inflation adjustments show success in price control, leading to a weakened Dollar outlook.
• Banxico holds rates at 11.25% with changes in policy statements indicating a careful stance on future adjustments.

The Mexican Peso (MXN) advanced steadily in early trading on Friday against the US Dollar (USD) following the latest revision on inflation figures in the United States (US). The data confirms the Federal Reserve’s (Fed) attempt to curb elevated prices is working, opening the door to lower interest rates. Therefore, the Greenback (USD) is trading softer, and the USD/MXN exchanges hands at 17.10, down 0.25%.

Mexico’s economic docket during the last two days has been busy. Inflation is heading up, while the Bank of Mexico (Banxico) decided to hold rates at 11.25%, though it removed hawkish language from the monetary policy statement. Instead, they added, “In the next monetary policy meetings, it will assess, depending on available information, the possibility of adjusting the reference rate.”

Daily digest market movers: Mexican Peso appreciates despite Banxico dropping hawkish comments

• Banxico’s Governing Council stated that inflationary risks are tilted to the upside in the near term while adding that higher core inflation, foreign exchange depreciation, and a greater-than-expected economic resilience in the country would keep inflationary pressure up.
• On the downside, a global economic slowdown and lower exchange rate levels in relation to the first months of 2023 “contribute more than anticipated to reduce certain pressures on inflation.”
• Mexico’s central bank revised their inflation expectations to the upside for Q1 to Q3 of 2024, and they expected to converge toward 3.5% in Q4.
• Before Wall Street opened, the National Statistics Agency (INEGI) announced that Mexican Industrial Production fell 0.7% in December from November and was flat YoY.
• On Thursday, INEGI revealed that Mexico´s Consumer Price Index (CPI) in January, rose by 4.88% YoY, while underlying inflation moderated to 4.76%.
• The US Bureau of Labor Statistics (BLS) released an inflation data revision, indicating that US inflation rates at the end of 2023 were consistent with initial reports, even after annual revisions. The core CPI, which excludes food and energy, increased at a 3.3% annualized rate in Q4 2023, aligning with previous estimates. The headline inflation figure saw minimal adjustments with December's monthly rise slightly revised down to 0.2% from 0.3%.
• US Initial Jobless Claims of 218K for the last week were lower than estimates of 220K, down from 227K in the previous reading.
• US Federal Reserve officials remain cautious about guiding market participants about when they would begin easing policy. Yesterday, Richmond Fed President Thomas Barkin was asked about Powell’s comments: “Chairman Powell always speaks for the Committee.”

Technical analysis: Mexican Peso surges as USD/MXN tumbles below 17.10

The USD/MXN is neutral to downwardly biased after clashing with the 50-day Simple Moving Average (SMA) at 17.12 with buyers unable to decisively break that level. Since then, the exotic pair has resumed its downtrend, though it could remain at around the 17.05/17.17 range. Further downside lies ahead as the Relative Strength Index (RSI) shows bears are gathering momentum with the slope peaking two days ago before extending its downtrend. The next support levels lie at 17.05, the psychological 17.00 figure and last year’s low of 16.62.

On the other hand, if buyers reclaim the 50-day SMA, that can pave the way to test the 200-day SMA at 17.31. Upside risks emerge once that barrier is cleared. The next real resistance comes at 17.41, the 100-day SMA.

USD/MXN Price Action – Daily Chart