Market Data 
- Mexican Peso gains, with USD/MXN falling below 17.00, reflecting a 0.11% decrease after disappointing US labor reports.
- Mexico’s Gross Fixed Investment shows mixed results; Private Consumer Spending continues to grow, signaling economic strength.
- Bank of Mexico’s latest poll anticipates inflation at 4.2% by 2024, with the Mexican economy expected to grow by 2.25%.
The Mexican Peso holds to earlier gains versus the US Dollar on Friday after seesawing following a softer-than-expected employment report in the United States (US) reignited speculation that the Federal Reserve (Fed) might lower interest rates as the jobs market weakened. Furthermore, US business activity in the services sector shows signs of contraction, which bolstered the Mexican currency. The USD/MXN trades at 16.96, down by 0.11%.
Mexico’s economic schedule revealed that Gross Fixed Investment trailed in the twelve months to February data but increased in monthly figures. Further data revealed that February’s Private Consumer Spending grew in monthly and yearly figures, an indication of the economy’s robustness.
Meanwhile, the Bank of Mexico (Banxico) April poll showed that private economists estimate inflation to end at 4.2% in 2024, underlying prices at 4.1%, and the economy to grow by 2.25%. Regarding the USD/MXN, analysts revised their projections downward from 18.10 to 17.
Across the border, the US Bureau of Labor Statistics (BLS) revealed that Nonfarm Payrolls in April missed the estimates and trailed the latest reading, underscoring the jobs market is cooling.
Other data revealed by the Institute for Supply Management (ISM) showed that business activity contracted for the first time since December 2022
Daily digest market movers: Mexican Peso on the back foot following soft US data
- Mexico’s Gross Fixed Investment in February rose 0.2% MoM, exceeding estimates of 0% and January’s 0.1% increase. On an annual basis, investment missed forecasts of 2.1%, dipping to 1.6% from 2.5%.
- Mexico’s Private Consumer Spending rose by 0.6% MoM in real terms. Annually, spending grew 3.9% in non-seasonally adjusted terms.
- Last week, Banxico Governor Victoria Rodriguez Ceja said the central bank would be data-dependent. However, weak GDP data could lead to a “live meeting” on May 9.
- The US Nonfarm Payrolls came in at 175K, below the consensus of 243K and trailing March’s revised 315K figure. Further data showed the Unemployment Rate ticked up from 3.8% to 3.9%, while Average Hourly Earnings (AHE) missed the 0.3% estimate to 0.2%.
- The ISM April Services PMI dipped below the 50.0 expansion/contraction threshold and came at 49.4, beneath projections and March’s reading. Digging deep into the report, the Employment subcomponent cooled, while Prices Paid increased. This could prevent the Federal Reserve from cutting rates as inflation seems to be reaccelerating.
- On Wednesday, the Fed decided to keep the fed funds rate unchanged at 5.25%-5.50 %. They acknowledged that risks to achieving the Fed’s dual mandate on employment and inflation “moved toward better balance over the past year.” Although they said there’s progress on inflation, recent data shows that it has stalled.
- Fed policymakers said they would reduce the rate of shrinking its balance sheet beginning in June. This will be done by lowering the cap from $60 billion to $25 billion for the amount of Treasury maturities not reinvested every month.
- Data from the Chicago Board of Trade (CBOT) suggests that traders expect the fed funds rate to finish 2024 at 5.045%, unchanged compared to Thursday.
Technical analysis: Mexican Peso tumbles as USD/MXN climbs above 17.00
The USD/MXN is recovering some ground, underscoring today’s Mexican Peso weakness, following the release of macroeconomic data in the US. On its way up, the exotic pair cleared key resistance levels that shifted to support as the pair edged above the 17.00 psychological figure.
If buyers extend the rally past the 200-day Simple Moving Average at 17.17, that could pave the way to test the weekly high of 17.24. The next key resistance levels would be the January 23 swing high of 17.38 and the year-to-date high of 17.92.
Conversely, if the pair tumbles below 17.00, the first support would be the 100-day Simple Moving Average (SMA) at 16.94, followed by the 50-day SMA at 16.81. Up next would be the 2023 low of 16.62.
Mexican Peso FAQs
The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.
The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.
Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.
As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
