Mexican Peso gains amid mixed US jobs data, early rate cut bets

• Mexican Peso appreciates for the seventh consecutive day, buoyed by soft US Dollar following mixed US jobs report.
• Banxico's upcoming rate decision eyed closely after subdued Mexican inflation figures.
• US Nonfarm Payrolls exceed expectations, but revisions and higher Unemployment Rate fuel speculation of June Fed rate cut.

The Mexican Peso appreciated for the seventh straight day on Friday against the US Dollar following a mixed jobs report from the United States that increased speculation that the US Federal Reserve (Fed) would cut interest rates in June. The data helped the Greenback tumble to refresh seven-week lows, a tailwind for the emerging market currency that is set to finish the week with gains of more than 0.20%. The USD/MXN trades at 16.78, down 0.52%.

Mexico’s economic docket is empty on Friday, but data revealed during the week could influence the Bank of Mexico (Banxico) decision on March 21. Gross Fixed Investment remained flat on monthly figures but contracted for the 12 months to December, while Consumer Confidence was unchanged. However, Thursday’s inflation data was the main spotlight, with the Consumer Price Index (CPI) lower than expected on monthly and annual figures, while core CPI was mixed.

On the other side of the border, the US Bureau of Labor Statistics (BLS) revealed a mixed US Nonfarm Payrolls (NFP) report. Although the US economy added more jobs than expected, the BLS downwardly revised January’s figures, while the Unemployment Rate jumped close to the 4% threshold.

Daily digest market movers: Mexican Peso boosted by broad US Dollar weakness

• US Nonfarm Payrolls in February were higher than the consensus of 200K and rose by 275K. January’s figures were revised down to 229K from 353K. Further data underscored that the jobs market is cooling as the Unemployment Rate increased from 3.7% to 3.9%, while Average Hourly Earnings edged lower in monthly and annual figures.
• Earlier, New York Fed President John Williams said that the Fed's tight monetary policy has moderated demand, emphasizing the Fed's dedication to price stability. He stressed that the Fed's decisions are independent of politics and remarked on the economy's strong performance in 2023.
• Mexican economic data released in the week:
  • Mexico’s inflation was 4.40% YoY, below estimates of 4.42% and January’s 4.88%. On a monthly basis, CPI was down from 0.11% to 0.09%.
  • The Core CPI rose by 4.64% above forecasts but lower than the previous reading of 4.76%, while monthly figures were aligned with estimates of 0.49%, up from 0.40%.
  • Mexico’s consumer confidence index was 47.0 in February when adjusted for seasonal factors. The unadjusted index was 47.1.
  • Mexico’s Gross Fixed Investment remained flat in December. Nevertheless, on an annual basis, it dipped from 19.2% to 13.4%.
• A Reuters poll sees the Mexican Peso depreciating 7% to 18.24 in 12 months from 16.96 on Monday, according to the median of 20 FX strategists polled between March 1-4. The forecast ranged from 15.50 to 19.00.
• A Reuters poll shows 15 analysts estimate that inflation will slow down in February, corroborating bets that the Bank of Mexico (Banxico) could cut rates as soon as the March 21 meeting.
• Banxico’s private analysts' poll projections for February were revealed. They expect inflation at 4.10%, core CPI at 4.06%, and the economy to grow by 2.40%, unchanged from January. Regarding monetary policy, they see Banxico lowering rates to 9.50% and the USD/MXN exchange rate at 18.31, down from 18.50.
• During Banxico’s quarterly report, policymakers acknowledged the progress on inflation and urged caution against premature interest rate cuts. Governor Victoria Rodriguez Ceja said adjustments would be gradual, while Deputy Governors Galia Borja and Jonathan Heath called for prudence. The latter specifically warned against the risks of an early rate cut.
• Banxico updated its economic growth projections for 2024 from 3.0% to 2.8% YoY and maintained 1.5% for 2025. The slowdown is blamed on higher interest rates at 11.25%, which sparked a shift in three of the five governors of the Mexican Central Bank, who are eyeing the first rate cut at the March 21 meeting.
• The political race is almost defined in the United States after Super Tuesday. Former President Donald Trump leads the Republicans with 995 delegates, shy of the 1,215 needed. On the Democratic side, US President Joe Biden leads with 1,497 delegates, short of the 1,968 needed.
• The CME FedWatch Tool shows traders increased their bets for a 25-basis-point rate cut in June from 52.7% a week ago to 78%.

Technical analysis: Mexican Peso posts solid rally as USD/MXN hovers around 16.80

The USD/MXN downtrend remains in play after breaching below 17.90, printing a new yearly low of 16.76. However, sellers need to achieve a daily close below 16.80 if they would like to test the 2023 yearly low of 16.62. Once that barrier is surpassed, look for October 2015’s low of 16.32 and the 16.00 threshold.

On the other hand, if buyers reclaim the 17.00 figure, that could open the door to testing the 50-day Simple Moving Average (SMA) at 17.05, followed by the 200-day SMA at 17.23 and the 100-SMA at 17.24.

USD/MXN Price Action – Daily Chart