Mexican Peso steadies as traders eye Banxico decision

• Mexican Peso is virtually unchanged after hitting a daily high of 19.46.
• Banxico expected to cut rates by 25 bps, but a larger cut could push USD/MXN toward the 20.00 level.
• Mexico's inflation continues to ease, boosting hopes for further rate cuts to stimulate the economy.

The Mexican Peso recovered slightly against the US Dollar on Thursday after data from the United States (US) suggested the economy fares well despite decelerating. Traders' eyes are on the Bank of Mexico (Banxico) monetary policy decision at around 19:00 GMT. The USD/MXN trades at 19.64, virtually unchanged.

Mexico’s economic docket remains absent, though mixed Retail Sales and Economic Activity figures could prompt Banxico to lower rates to stimulate the economy, though it isn’t in the Mexican central bank's mandate. Furthermore, Tuesday’s inflation report was positive, with the headline and underlying readings continuing to slow down in July.

In the last meeting, Banxico’s Governing Board decided to lower interest rates by 25 basis points (bps) from 11.00% to 10.75% in a 3-2 vote split. Governor Victoria Rodriguez and Deputy Governors Galia Borja and Omar Mejia supported a cut. At the same time, Deputy Governors Irene Espinosa and Jonathan Heath favored a pause on its easing cycle.

The question is: How much would Banxico ease policy after the Federal Reserve (Fed) slashed rates by 50 basis points? In the latest Bloomberg survey, 20 of 25 analysts had priced in a 0.25% cut, but four expect a 0.50% cut while one expects the board to hold rates unchanged.

A higher-than-expected rate cut could sponsor a leg-up in the USD/MXN toward the psychological 20.00 figure. Conversely, if Banxico maintains the status quo, it could be positive for the Peso, which could test the 19.50 figure and below.

Across the south of the border, the US schedule revealed final Gross Domestic Product (GDP) figures for Q2 2024, which were better than expected, while jobs data showed that the number of Americans filing for unemployment benefits was lower than anticipated and also below the previous number.

Meanwhile, Fed speakers had crossed the newswires but failed to comment on monetary policy.

Daily digest market movers: Mexican Peso stays firm amid lack of catalysts

• Mexican political turmoil eases as market participants prepare for the change of president on October 1, a bank holiday in Mexico. President-Elect Claudia Sheinbaum’s speech will be watched for hints about her economic plan.
• USD/MXN whipsawed and erased earlier losses, boosted by the buck’s recovery.
• Banxico is expected to lower borrowing costs by 175 bps toward the end of 2025, according to the swaps markets.
• US Dollar Index (DXY), which tracks the buck’s performance against a basket of six peers, is virtually unchanged at 100.90.
• Market participants have fully priced in at least a 25 bps rate cut by the Fed. However, the odds for 50 bps of easing are 51.3%, lower than the 60% chance a day ago, according to the CME FedWatch Tool.

USD/MXN technical analysis: Mexican Peso hovers at around 19.60

The uptrend remains in place, with USD/MXN eyeing further upside, which could happen if they push the spot price above the current weekly high of 19.68, opening the door to challenge the September 12 peak at 19.84 ahead of the psychological 20.00 figure. Momentum favors further upside as the Relative Strength Index (RSI) is bullish.

Failure to conquer 19.68 could pave the way for lower prices. The first support would be the 19.50 mark, followed by the September 24 swing low of 19.23, before the pair moves toward the September 18 low of 19.06. Once those levels are surpassed, the 19.00 figure emerges as the next line of defense.