Mexican Peso recovers after Banxico Minutes, Sheinbaum courts US finance

• The Mexican Peso recovers after the release of fairly benign Banxico minutes improved the outlook. 
• President Sheinbaum sends an envoy to meet the “kings” of US finance: Dimon and Fink.  
• USD/MXN peaks and pulls back after its mini-rally runs out of steam. 

The Mexican Peso (MXN) edges higher in its most-traded pairs on Friday, carrying momentum over from its recovery on the previous day, when it found a floor and rose following the release of the Bank of Mexico (Banxico) meeting minutes. 

In their discussions, Banxico officials painted an overall benign picture of the Mexican economy, with inflation “improving”, a “stable” labor market, and high demand for exports but also a loss of “dynamism” and “productive activity” in the domestic economy.  

The Peso may be garnering further support as political risks ease following meetings with the CEOs of US finance giants JP Morgan Chase and Blackrock, and pivot back to the US elections.

Mexican Peso rises after release of Banxico Minutes 

The Mexican Peso appreciated following the release of the Banxico September meeting Minutes on Thursday, at which the bank decided by a majority vote to lower the target for the Overnight Interbank Interest Rate by 25 basis points (bps) to 10.50%. There was one dissenter, Jonathan Ernest Heath Constable. Below are ten key takeaways from the Minutes: 

• Most noted the inflation outlook in Mexico has been improving. 
   
• Forecasts for headline and core were adjusted slightly downward for some quarters in the near term.
   
• In the last reading, food commodity inflation was 3.95%, while non-food was 1.69%, in both cases clearly below their respective historical averages.
   
• All agreed services inflation continues to show persistence.
   
• The balance of risks with respect to the expected trajectory of inflation over the forecast horizon remains skewed to the upside.
   
• All members indicated that the labor market remains solid.
   
• The yield curve of government securities showed downward movements, especially in the short maturities.
   
• Most noted a contraction in consumption of imported goods, whilst the value of manufacturing exports – both automotive and non-automotive – recorded some reactivation during July.
   
• All agreed that domestic productive activity is going through a period of weakness, and most agreed that there has been a visible loss of dynamism since the last quarter of 2023.
   
• The information available for the beginning of the third quarter shows some rebound regarding domestic demand. 

Sheinbaum administration courts US investors 

Despite investor concerns regarding the political outlook for Mexico after the Morena-led coalition victory in June, there appear to be signs the new Sheinbaum administration is attempting to build bridges with some of the big players in global finance. 

On Thursday, the Mexican Secretary of Finance, Rogelio Ramírez de la O, separately met with the CEO of Blackrock, Larry Fink,  and JP Morgan Chase’s CEO, Jamie Dimon, reports El Financiero. Although no details of the meetings have been made public, the move could be interpreted as part of a charm offensive by the Mexican government to win back the confidence of investors. 

“Before the election turmoil, Dimon said last November that he saw a “huge” opportunity in Mexico, amid a boom in factories moving to the country to be closer to the United States, as part of a business trend known as nearshoring,” said El Financiero. 

Perhaps of greater concern to investors now is the outcome of the US presidential election in November. JP Morgan strategists downgraded their bullish stance on the Mexican Peso on Thursday due to the risks of a “highly unpredictable” US presidential election result.

Technical Analysis: USD/MXN retreats after peaking

USD/MXN bottomed out at the base of its long-term rising channel and recovered on October 4. However, its nascent uptrend has reversed after peaking at 19.62 on Thursday. Prices are now pulling back down towards the base of the channel and the 50-day Simple Moving Average (SMA) again.

USD/MXN Daily Chart 

That said, USD/MXN’s new short-term uptrend is still probably intact, and prices could still recover and continue rising within the ascending channel. In addition, the medium and longer-term trends remain bullish, and given the technical analysis principle that “the trend is your friend,” this favors an eventual continuation higher when the longer bullish cycles kick in.

A break above the 19.62 high would see USD/MXN resume its uptrend and continue up to the next target at 19.83 (October 1 high). 

A break below 19.31 (October 9 low), however, would be a bearish sign indicating the possibility the short-term uptrend had ended and either a sideways or more bearish trend was evolving instead.