- The Mexican Peso extends its recovery against the Dollar, and the USD/MXN pair falls below the 200-day SMA.
- The Federal Reserve is holding rates steady, and Chairman Jerome Powell’s comments are seen as a sign of the end of the rate-hiking cycle.
- Money market traders estimate that the Fed will cut rates for the first time in June 2024, which is a drag on the USD/MXN.
He Mexican Peso (MXN) extends its recovery against US Dollar (USD)with the USD/MXN falling below the important 200-day technical simple moving average (SMA), as market participants speculate that the US Federal Reserve (Fed) is done raising rates following Wednesday’s decision. Falling Treasury yields in the United States (US) dampen appetite for the US Dollar (USD). The USD/MXN pair is trading below 17.60, registering losses close to 1% on the day.
On Wednesday, the Federal Reserve held the target range for the federal funds rate steady at 5.25%-5.50% without changing the tone of the monetary policy statement. After that, Fed Chair Jerome Powell hit markets with some hawkish comments, although he added that “we’ve come very far with this rate-hiking cycle and we’re near the end of the cycle.”
Regarding the latter, money market operators are assessing that the Fed has finished raising rates, with the probability of keeping rates at 80% in December, as operators expect the first rate cut in June 2024. The probabilities of a cut of 25 basis points stand at 67.80%.
Thursday’s data revealed that the Federal Reserve’s decision to pause was justified, as last week’s jobless claims exceeded estimates and data from the previous week, extending the uptrend to six consecutive weeks. , while unit labor costs unexpectedly decreased in the third quarter. On the other hand, factory orders skyrocketed above August and analyst forecasts, as the US economy continues to show resilience and continues to grow above trend.
However, market participants will focus on October’s US Nonfarm Payrolls report, which is expected to show the economy added just 180,000 jobs with a projected unemployment rate of 3.8%. Due to the extent of the dollar’s losses, a better-than-expected report could rock the boat sharply and catch traders off guard.
On the Mexican front, the economic agenda included the publication of Foreign Exchange Reserves. The Bank of Mexico – also known as Banxico – reported that “reserves in Mexico decreased to 209,626 USD Million in September from 210,385 USD Million in August 2023.”
Daily movements: The Mexican peso rises strongly after the Fed’s moderate stance
- Initial claims for jobless benefits in the United States for the week ending October 28 increased by 217,000, surpassing estimates and the previous week’s figures of 210,000 and 212,000, respectively.
- September factory orders grew surprisingly, standing at 2.8% month-on-month, above forecasts of 2.3% and 1% in August.
- The US ADP employment change in October rose to 113,000, better than the previous month, but fell short of forecasts of 150,000.
- The ISM Manufacturing PMI fell into contractionary territory at 46.7 in October, below forecasts and September’s reading of 49.
- The JOLTs employment report for September showed an increase in job vacancies by 9.553 million, above forecasts of 9.25 million and 9.497 million in August.
- Mexico’s S&P Global October manufacturing PMI stood at 52.1 points, up from 49.8 in September.
- Mexico’s Gross Domestic Product grew 0.9% quarter-on-quarter in the third quarter in its preliminary reading, above the previous quarter and estimates of 0.8%.
- In annual terms, Mexican GDP in the third quarter grew 3.3%, above forecasts of 3.2%, but below the previous 3.6%.
- According to Enki Research, a company specialized in natural disasters, the first estimates of the damage from Hurricane Otis in Mexico are between 10,000 and 15,000 million dollars.
- On October 24, Mexico’s National Statistics Institute (INEGI) reported that annual headline inflation stood at 4.27%, up from 4.45% at the end of September, below forecasts of 4.38%.
- Mexico’s core inflation rate was 5.54% year-on-year, below forecasts of 5.60%.
- The Bank of Mexico (Banxico) kept rates at 11.25% in September and revised its inflation forecasts from 3.50% to 3.87% for 2024, above the central bank’s target of 3.00% (plus or minus 1%). The next decision will be announced on November 9.
Price Analysis: USD/MXN eyes 17.50: Mexican Peso buyers conquer the 200-day simple moving average
USD/MXN finally fell below the 200-day SMA at 17.70, extending its losses towards the 50-day SMA at 17.61. A daily close below these two crucial support levels, and the pair could extend its decline towards the September 29 daily low at 17.34.
On the other hand, if USD/MXN buyers intervened and reclaimed the 200-day SMA, that could open the door to a recovery of the psychological figure of 18.00. A breakout of the latter could expose the pair to a decline. A break of the latter could expose a recovery towards the 20-day SMA at 18.06 before targeting the October 26 high at 18.42 before challenging last week’s high at 18.46, before 18.50.
Frequently Asked Questions about the Mexican Peso
What factors determine the price of the Mexican Peso?
The Mexican Peso (MXN) is the most traded currency in Latin America. Its value is largely determined by the evolution of the Mexican economy, the policy of the country’s central bank, the volume of foreign investment in the country and even the levels of remittances sent by Mexicans living abroad, especially in the United States. Joined. Geopolitical trends can also move the MXN: for example, the nearshoring process – or the decision by some companies to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the currency. Mexican, since the country is considered a key manufacturing center on the American continent. Another catalyst for the MXN is oil prices, as Mexico is a key exporter of this commodity.
How do Banxico’s decisions affect the Mexican peso?
The main objective of Mexico’s central bank, also known as Banxico, is to keep inflation at low and stable levels (at or near its target of 3%, the midpoint in a tolerance band between 2% and 4%. %). To do this, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico tries to control it by raising interest rates, which makes borrowing more expensive for households and companies, thus cooling demand and the economy in general. Higher interest rates are generally positive for the Mexican peso (MXN), as they translate into higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken the MXN.
How do economic data influence the value of the Mexican Peso?
The publication of macroeconomic data is key to evaluating the state of the economy and can have an impact on the valuation of the Mexican Peso (MXN). A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for the MXN. Not only does it attract more foreign investment, but it may encourage the Bank of Mexico (Banxico) to raise interest rates, especially if this strength is accompanied by high inflation. However, if economic data is weak, the MXN is likely to depreciate.
How does general risk sentiment affect the Mexican Peso?
As an emerging market currency, the Mexican Peso (MXN) tends to strengthen during periods of risk appetite, or when investors perceive that overall market risks are low and are therefore eager to engage in investments. that carry greater risk. On the contrary, the MXN tends to weaken in times of market turmoil or economic uncertainty, as investors tend to sell riskier assets and flee to more stable havens.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
