Mexican Peso extends its losses amid Banxico’s Governor dovish tilt

• Mexican Peso drops 0.51% against USD after Banxico Governor suggests potential rate cuts.
• Governor Rodriguez Ceja notes core inflation’s downtrend, fueling speculation of a June 27 rate cut.
• Attention turns to US inflation data, critical for upcoming Fed policy decisions.

The Mexican Peso depreciated versus the US Dollar during the North American session on Monday after Bank of Mexico (Banxico) Governor Victoria Rodriguez Ceja commented, “We could evaluate downward adjustments” to the main reference rate. In the meantime, traders brace for the release of the latest inflation figures in the United States (US), which would be the spotlight as the Federal Reserve (Fed) delineates its monetary policy path. The USD/MXN trades at 16.81, up 0.51%.

Banxico Governor Victoria Rodriguez Ceja noted that the increase in general inflation was due to volatile non-core components. Nevertheless, she added that core prices continued a “very clear” downtrend. She added that depending on the evolution of the inflationary outlook, the Mexican central bank could evaluate whether to continue lowering interest rates, starting with the next meeting on June 27.

Last week, Banxico decided to keep rates unchanged at 11.00% following March’s first rate cut. In its monetary policy statement, the Governing Council mentioned that inflationary shocks “are foreseen to take longer to dissipate,” which spurred an upward revision of inflationary figures.

Across the border, the US economic docket featured a speech by Fed Vice-Chair Philip Jefferson, who said that it’s appropriate to keep policy rates restrictive until inflation ebbs.

Daily digest market movers: Mexican Peso drops amid a light economic docket

• Mexico’s economic docket will be absent during the current week. The next economic data released would be Retail Sales expected on May 20, followed by the Gross Domestic Product (GDP) and inflation figures on May 23.
• Banxico will reveal its latest meeting minutes on May 23.
• April’s data show that Mexico’s headline inflation is reaccelerating. However, core prices are falling. This spurred Banxico’s revision to its inflation projections, with the bank expected to hit its 3% target toward the last quarter of 2025, later than March’s estimates for Q2 2025. Core inflation is projected to hit 3% in Q2 2025.
• In the short term, the US economic docket will feature the Producer Price Index (PPI) on May 14, followed by the Consumer Price Index (CPI) and Retail Sales on May 15.
• USD/MXN traders are eyeing Fed Chair Jerome Powell’s on May 14.
• The deterioration in consumer sentiment, alongside a cooling labor market, has opened the door for investors to price in rate cuts by the Fed. This is because US central bank policymakers acknowledged that risks to achieving its dual mandate on employment and inflation “moved toward better balance over the past year.”
• Data from the futures market show odds for a quarter-percentage-point Fed rate cut in September at 79% versus 78% last Friday.

Technical analysis: Mexican Peso falls as USD/MXN rises above 16.80

The USD/MXN downtrend remains in play, but a daily close above last Friday’s high of 16.81 could form a ‘bullish engulfing’ candle pattern, which could pave the way for a leg up. In the near term, momentum favors sellers as the Relative Strength Index (RSI) remains bearish but is briskly turning bullish.

If buyers lift the exchange rate above the 100-day Simple Moving Average (SMA) at 16.92, that could exacerbate a rally toward the 17.00 psychological level. A breach of the latter would expose the 200-day SMA at 17.17, followed by the January 23 swing high of 17.38 and the year-to-date high of 17.92.

On the flip side, a bearish continuation could resume if the USD/MXN tumbles below the 50-day SMA at 16.78, opening the door to test the 2023 low of 16.62, followed by the current year-to-date low of 16.25.