The Mexican Peso (MXN) trades with minor gains against the US Dollar (USD) on Friday, regaining some of the ground lost following a ”hawkish cut” by the Federal Reserve (Fed) on Wednesday.
The Peso bounced up from two-week lows on Thursday after the Bank of Mexico (Banxico) confirmed investors’ expectations and cut rates by 25 basis points (bps) to close the year at 10%.
The central bank’s statement warns about the negative impact of higher tariffs in the US and observes that the labour market loosened. Inflation has cooled and is expected to continue that way, which will allow the bank to ease its monetary policy further next year.
Today, the focus is on the US Personal Consumption Expenditures (PCE) Prices Index, which is expected to confirm that inflation remains sticky at levels above the Fed’s 2% rate. An upside surprise today would cast further doubt on the Fed’s easing cycle and provide additional support for the US Dollar.
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Australian Dollar.
USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
---|---|---|---|---|---|---|---|---|
USD | -0.13% | 0.04% | -0.38% | -0.03% | 0.25% | 0.12% | -0.33% | |
EUR | 0.13% | 0.17% | -0.20% | 0.13% | 0.40% | 0.25% | -0.20% | |
GBP | -0.04% | -0.17% | -0.37% | -0.07% | 0.20% | 0.08% | -0.37% | |
JPY | 0.38% | 0.20% | 0.37% | 0.33% | 0.60% | 0.46% | 0.03% | |
CAD | 0.03% | -0.13% | 0.07% | -0.33% | 0.27% | 0.15% | -0.30% | |
AUD | -0.25% | -0.40% | -0.20% | -0.60% | -0.27% | -0.14% | -0.57% | |
NZD | -0.12% | -0.25% | -0.08% | -0.46% | -0.15% | 0.14% | -0.44% | |
CHF | 0.33% | 0.20% | 0.37% | -0.03% | 0.30% | 0.57% | 0.44% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
The USD/MXN recovery has been capped at 20.50, and the pair pulled back to test support at the top of the previous trading channel at the 20.25-20.30 area.
Technical indicators show that the bullish momentum is losing steam, although the Relative Strength Index (RSI) remains above 50. On the downside, below the mentioned 20.25, the next target is the key 20.00 level (November 19 and December 16 lows). Resistances are at Thursday’s high of 20.50, ahead of the November 6 and 26 highs at 20.80.
The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican Peso (MXN), and to set the monetary policy. To this end, its main objective is to maintain low and stable inflation within target levels – at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%.
The main tool of the Banxico to guide monetary policy is by setting interest rates. When inflation is above target, the bank will attempt to tame it by raising rates, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN. The rate differential with the USD, or how the Banxico is expected to set interest rates compared with the US Federal Reserve (Fed), is a key factor.
Banxico meets eight times a year, and its monetary policy is greatly influenced by decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee usually gathers a week after the Fed. In doing so, Banxico reacts and sometimes anticipates monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico did it first in an attempt to diminish the chances of a substantial depreciation of the Mexican Peso (MXN) and to prevent capital outflows that could destabilize the country.
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