Mexican Peso rises on dovish Powell comments

• Mexican Peso rallies after dovish remarks from Fed Chair Powell.
• Powell highlights progress on US inflation, hints at balanced risks.
• Banxico Governor Rodriguez Ceja suggests possible future rate cuts as disinflation persists.
• Banxico survey adjusts GDP, policy outlook down, forecasts 2024 USD/MXN rate at 18.73 from 17.80.

The Mexican Peso advanced against most currencies on Tuesday, particularly the US Dollar, after Federal Reserve (Fed) Chairman Jerome Powell delivered remarks perceived as dovish by market participants. This punished the Greenback, which lost some 0.70% as the USD/MXN traded at 18.22 below its opening price.

Powell commented that the US economy made significant progress on inflation while adding that the risks of the Fed’s dual mandate are more balanced. His remarks came before the release of May’s JOLTs report, which came in hotter than expected.

Aside from this, the Mexican currency gained some traction even though Bank of Mexico Governor Victoria Rodriguez Ceja was dovish, adding that the progress of disinflation can “allow us to continue discussing downward adjustments in our rate, and I consider that this is what we will be doing in our next monetary policy meetings.”

Mexico’s economic docket featured Gross Fixed Investment in April, which showed mixed readings between monthly and annual figures.

Meanwhile, Banxico’s latest survey of economic expectations showed that most private analysts have revised the Gross Domestic Product (GDP) and their monetary policy expectations downward. Regarding the USD/MXN exchange rate for 2024, economists lifted their forecasts from 17.80 to 18.73.

Daily digest market movers: Mexican Peso climbs despite expected economic deceleration

• Banxico’s survey showed that economists estimate the Gross Domestic Product (GDP) to end at 2%, down from 2.1%. They expect Banxico to cut rates from 11.00% to 10.25%, up from 10.00% projected in May.
• Mexico's Gross Fixed Investment increased in April from 0.8% to 0.9% MoM but missed estimates of 1.2%. On an annual basis, investment grew 18.1%, crushed March’s 3%, and exceeded forecasts for a 17.1% increase.
• US job openings rose in May from 7.919 million to 8.14 million, exceeding the 7.91 million projected by the consensus, revealed the US Bureau of Labor Statistics (BLS).
• US business activity in the manufacturing sector was mixed, according to S&P Global Manufacturing and the Institute for Supply Management (ISM). Traders are eyeing the release of the services sector on Wednesday.
• CME FedWatch Tool shows odds for a 25-basis-point Fed rate cut in September at 63%, up from 58% on Monday.

Technical analysis: Mexican Peso gains traction as USD/MXN slumps below 18.30

The USD/MXN failed to decisively crack the June 28 high of 18.59, which prompted market participants to sell the pair, which dropped below 18.30.  Momentum is still in favor of buyers but aims lower, suggesting that in the near term sellers are in control.

If USD/MXN tumbles further, the next stop would be the psychological 18.00 figure. Once cleared, the next support level would be the December 5 high turned support at 17.56 before sliding toward the 50-day Simple Moving Average (SMA) at 17.37.

On the flip side, if buyers lift the spot price above 18.50, that will exacerbate a rally toward the June 28 high of 18.59 if they would like to extend their gains and challenge the year-to-date high of 18.99.