Mexican Peso holds ground despite weak Mexican Retail Sales

• Mexican Peso is virtually unchanged as Mexico's Retail Sales decline hints at economic pressure.
• Recent data may influence Banxico's rate decisions amidst reduced consumer spending reports.
• Investors' focus shifts to FOMC Minutes for insight into the Fed's rate trajectory and its impact on MXN.

The Mexican Peso (MXN) stays firm against the US Dollar (USD) even though data from Mexico suggests that consumers are spending less, which should weigh on the economy’s outlook. That capped the Peso’s advance while traders awaited the release of the latest Federal Reserve (Fed) meeting Minutes. At the time of writing, the USD/MXN exchanges hands at 17.05, unchanged.

Mexico’s National Statistics Agency revealed that Retail Sales plunged in December, in both monthly and annual figures, an indication that consumers are feeling the pain of higher interest rates set by the Bank of Mexico (Banxico). Today’s data summed to Monday’s Indicator of Economic Activity (IOAE), suggesting the economy shrank -0.7% MoM in January, which could weigh on Banxico’s decision to lower rates at the March meeting.

USD/MXN traders are eyeing the release of the Federal Open Market Committee (FOMC) January Minutes, which are not expected to rock the boat sharply. After the monetary policy statement release last month, Fed Chair Jerome Powell threw cold water on a rate cut in March, while most policymakers commented that the Fed is in no rush to cut rates.

Daily digest market movers: Mexican Peso fluctuates between minimal gains/losses ahead of Fed Minutes

• Mexico’s Retail Sales dropped -0.9% MoM, below estimates of 0.2% expansion. Yearly figures plummeted -0.2% vs. the forecast of a 2.5% increase.
• The Mexican currency could depreciate further if the Mexican government fails to resolve the steel and aluminum dispute with the United States. US Trade Representative Katherine Tai warned the US could reimpose tariffs on the aforementioned commodities.
• Mexico’s economic schedule will feature the release of the Gross Domestic Product (GDP) and February’s Mid-Month inflation data on Thursday.
  • GDP is projected to have grown 0.1% in Q4 2023 and 2.4% YoY.
  • Mid-month underlying inflation for February is foreseen cooling from 4.78% to 4.67 YoY, while headline inflation is projected to drop from 4.9% to 4.7%.
• On Tuesday, the Conference Board (CB) revealed its Leading Economic Index (LEI), which no longer signals an upcoming recession in the US.
• Recently, Richmond Fed President Thomas Barkin said the latest inflation reports were “less good,” adding the US has “a ways to go” to achieve a soft landing.
• Traders will get further cues from US S&P Global PMIs, Initial Jobless Claims data and the Chicago Fed National Activity Index. The latter is usually a prelude to the Institute for Supply Management’s (ISM) Manufacturing PMI.
• US economic data related to price pressures should greatly influence Federal Reserve officials. Although opening the door to easing policy, Fed officials have expressed numerous times that they will not rush rate cuts.
• Fed’s Bostic said patience is required, and he foresees two rate cuts, which could begin in the summer if the data justifies it. Fed’s Daly said, “We will need to resist the temptation to act quickly when patience is needed and be prepared to respond agilely as the economy evolves.”
• Market players are expecting the first rate cut by the Federal Reserve at the June monetary policy meeting as they have trimmed odds for March and May.

Technical analysis: Mexican Peso prints minimal losses as USD/MXN breaks above 17.05

The USD/MXN remains in consolidation, at around 17.05, awaiting a fresh catalyst. If buyers regain the 50-day Simple Moving Average (SMA) at 17.07, the pair could rally toward the 200-day SMA at 17.28. A breach of the latter will expose the 100-day SMA at 17.38, ahead of the 17.50 mark.

On the other hand, if sellers’ step in and cap USD/MXN’s upside, they need to push prices below the 17.00 figure. Once cleared, the next support would be the current year-to-date (YTD) low of 16.78, followed by the 2023 low of 16.62.

USD/MXN Price Action – Daily Chart