Mexican Peso extends rally as risk appetite offsets Fed hawkishness

• Mexican Peso strengthens despite Fed officials warning of stalled disinflation.
• Mexico’s Retail Sales and Q4 GDP are expected to show an economic slowdown.
• Banxico minutes could offer clues on potential 50 bps rate cuts.

The Mexican Peso (MXN) rallied for the sixth consecutive day amid an upbeat market mood, which keeps risk-sensitive currencies appreciating despite some Federal Reserve (Fed) officials turning slightly hawkish. At the time of writing, USD/MXN trades at 20.22, down 0.27%.

Mexico’s economic docket remained absent earlier in the week, though Retail Sales data and Banco de Mexico (Banxico) minutes of its last meeting could drive price action on Thursday. Towards the end of the week, Gross Domestic Product (GDP) figures would be of interest to USD/MXN traders.

Retail Sales in December are expected to show Mexico’s economy slowdown. The final GDP reading for Q4 2024 is expected to show a contraction on a quarterly basis and is foreseen to expand annually.

Meanwhile, investors await Banxico’s minutes, which will help them gather clues about the intention of reducing rates at a 50 basis point (bps) pace during the year.

In other news, Marcelo Ebrard, Mexico’s Secretary of Economy, revealed that he would meet this Thursday with his counterparts from the United States (US) government in Washington to discuss matters regarding tariffs and bilateral economic integration.

In the US, Federal Reserve officials turned cautious after the disinflation process stalled, as the Consumer Price Index (CPI) had risen for five straight months. San Francisco Fed President Mary Daly said during a conference in Arizona: “Policy needs to remain restrictive until… I see that we are really continuing to make progress on inflation.”

Daily digest market movers: Mexican Peso surges amid Fed steady stance

• Monetary policy divergence between Banxico and the Fed favors further USD/MXN upside. The Fed is expected to keep rates steady, while Banxico is foreseen to cut rates again by 50 basis points in the next meeting.
• Fed Governor Christopher Waller said that his "baseline" view was that US President Donald Trump's new trade restrictions would have only a modest impact on prices. Philadelphia Fed President Patrick Harker supported a steady interest-rate policy stance as he acknowledged that inflation has remained elevated and persistent in recent months.
• The US Dollar Index (DXY), which tracks the buck's performance against a basket of currencies, edges up 0.29%, at 107.04, usually a tailwind for USD/MXN.
• According to the December 2025 fed funds interest rate futures contract, the swaps market suggests that the Fed will reduce rates by 39 basis points towards year-end.
• Trade disputes between the US and Mexico remain in the boiler room. Although the countries found common ground previously, USD/MXN traders should know that there is a 30-day pause and that tensions could arise toward the end of February.

USD/MXN technical outlook: Mexican Peso is steady as USD/MXN is below 50-day SMA

At the time of writing, the USD/MXN pair is testing the 100-day Simple Moving Average (SMA) at 20.24, which, if decisively broken with a daily close below the latter, could pave the way to challenge the 20.00 psychological figure. Although the Relative Strength Index (RSI) remains bearish, its slope is flat, meaning that neither sellers nor buyers are in control.

On the other hand, if USD/MXN climbs past the 50-day SMA at 20.45, the exotic pair could rally to 20.50, followed by the January 17 daily high at 20.93.