Mexican Peso wavers as Consumer Confidence dips, US yields rise

• Mexican Consumer Confidence plunges to its lowest since August 2024, impacting Peso performance.
• Banxico remains dovish with potential rate cuts on the horizon following recent dips in inflation.
• US Dollar finds support from a rise in Treasury yields with the 10-year yield climbing to 4.24%.

The Mexican Peso erased its earlier gains and dropped to a four-day low before recovering some ground against the Greenback on Tuesday after Consumer Confidence figures in Mexico deteriorated, while US Treasury bond yields rose. The USD/MXN trades at 20.23, virtually unchanged.

Mexico’s National Statistics Agency revealed that Consumer Confidence hit its lowest level since August 2024, with nine of the ten subcomponents diminishing, according to the national survey.

The latest inflation report on Monday keeps traders optimistic that the Bank of Mexico (Banxico) will lower interest rates at the December 19 meeting. The November Consumer Price Index dipped in headline and core figures, opening the door for expansionary policies by the central bank.

Banxico’s Governor, Victoria Rodriguez Ceja, remained dovish. In her last interview with Reuters, she said that given the progress of disinflation, the central bank could continue lowering borrowing costs.

In November, the US National Federation of Independent Business reported a surge in small business optimism.

Earlier, the USD/MXN climbed, underpinned by the jump in US Treasury bond yields. The US 10-year Treasury yield rose three basis points to 4.24%, a tailwind for the Greenback.

The US Dollar Index (DXY), which tracks the performance of the buck’s value against a basket of six currencies, soars 0.40% to 106.59.

This week, Mexico’s economic docket will feature Industrial Production data. In the US, the Consumer Price Index (CPI), the Producer Price Index, and Initial Jobless Claims data will also entice traders.

Daily digest market movers: Mexican Peso consolidates at around 20.20

• Mexico’s Consumer Confidence in November edged down from 49.5 to 47.7, below forecasts of 48.0.
• The swaps market suggests Banxico will cut interest rates by 25 basis points at the December 19 meeting.
• Mexico’s economic docket revealed that headline and core inflation in November missed estimates, edging lower after the Consumer Price Index hit its highest level of 5.57% in July.
• US small businesses grew optimistic about the economy. The index came in at 101.7, exceeding forecasts of 95.3 and 93.7 in October.
• Money market futures price in 88% odds that the Fed will lower borrowing costs by 25 basis points this month, according to the CME FedWatch Tool.
• Banxico’s November survey shows that analysts estimate Mexican inflation at 4.42% in 2024 and 3.84% in 2025. Underlying inflation figures will remain at 3.69% in 2024 and 2025. GDP is forecast at 1.55% and 1.23% for 2024 and 2025, respectively, and the USD/MXN exchange rate at 20.22 for the rest of the year and 20.71 in 2025.

Mexican Peso technical outlook: USD/MXN remains firm below 20.30 on Peso strength

The USD/MXN consolidates at around the 20.10-20.30 area for the fourth consecutive day, slightly above immediate support seen at the 50-day Simple Moving Average (SMA) at 20.00. The Relative Strength Index (RSI) depicts momentum shifted to the downside in the near term, which could pave the way for further downside.

In that outcome, if USD/MXN drops below 20.00, the next support would be the 100-day SMA at 19.61 before testing the psychological 19.50 mark, ahead of the 19.00 figure.

Conversely, if USD/MXN soars above the December 6 high of 20.28, that could pave the way to challenge 20.50, ahead of the year-to-date peak at 20.82, followed by the 21.00 mark.