Market Data 
- The Mexican peso draws some support from the softer US Dollar to return to the key 20.00 level.
- Investors are trimming US Dollar bets ahead of Wednesday’s Federal Reserve meeting.
- The USD/MXN is trading lower but might need an extra boost to breach the 20.00 level.
The Mexican Peso (MXN) opens the week with moderate gains and consolidates near the 20.00 threshold. Amid the US Dollar’s (USD) reversal, declining US Treasury yields are providing some support to the Mexican currency ahead of interest rate decisions of both central banks.
In today’s economic calendar, US preliminary Purchasing Managers Index (PMI) data is expected to show that manufacturing activity contracted further in December, with the services sector expanding at a slower pace than in the previous month. The NY Empire State Manufacturing Index is expected to confirm the soft momentum of the sector.
These figures would be consistent with the view of a Federal Reserve (Fed) rate cut on Wednesday, although the market is likely to wait for some more insight into the central bank’s forward guidance before making investment decisions.
In Mexico, data was disappointing last week, with consumer inflation dropping beyond expectations and consumer confidence and industrial output disappointing. The macroeconomic backdrop remains resilient, with unemployment at low levels, but concerns that higher tariffs by Trump’s administration next year will hurt growth and will likely pressure the Bank of Mexico (Banxico) to cut rates by 25 bps on Thursday.
Daily digest market movers: US Dollar rally falters as the Fed decision approaches
- The US Dollar Index (DXY) has stalled near three-week highs and is trimming some gains on Monday as investors take profits awaiting the Fed’s monetary policy decision, due on Wednesday.
- US Treasury yields have pulled back from last week’s highs, undermining support for the USD. The yield of the benchmark 10-year note has retreated from 4.40% after having rallied continuously for the previous five trading days.
- US economic data released last week were mixed. Consumer inflation remained steady above the Fed’s 2% target rate, producer prices accelerated, but jobless claims increased against market expectations.
- The CME Fed Watch tool shows that the market is nearly fully pricing a 25 basis point (bps) rate cut by the Fed after Wednesday’s meeting. For next year, however, the market is pricing a 60% chance that the central bank will cut rates once or twice.
- Later today, the NY Empire State Manufacturing Index is expected to show a moderate deterioration in the manufacturing conditions, to a 12 leading from 31.2 in November.
- A few hours later, the preliminary US S&P Global Manufacturing PMI is expected to show a moderate decline to 49.4 in December from 49.7 last month. Services activity is seen slowing down to 55.7 from 56.1.
Mexican Peso technical outlook: USD/MXN has strong support at the 20.00 area
The USD/MXN is trading lower from its late November highs near 21.00, but the 20.00 psychological level remains a strong support for the pair. The pair has been treading water between the mentioned 20.00 support and 20.30 on the upside during last week.
The Mexican Peso would need an additional impulse to breach the 20.00 level against the US Dollar and shift its focus toward the October 24 and 25 and November 7 lows, at 19.75
On the upside, the USD needs to confirm above 20.30 before aiming for the December 2 high at 20.60 and November’s peak at around 20.80.
US Dollar PRICE Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.11% | -0.23% | 0.11% | 0.05% | 0.14% | 0.02% | -0.10% | |
| EUR | -0.11% | -0.30% | 0.10% | 0.01% | 0.20% | -0.01% | -0.15% | |
| GBP | 0.23% | 0.30% | 0.25% | 0.29% | 0.46% | 0.23% | 0.11% | |
| JPY | -0.11% | -0.10% | -0.25% | -0.07% | 0.04% | -0.07% | -0.15% | |
| CAD | -0.05% | -0.01% | -0.29% | 0.07% | 0.14% | -0.03% | -0.18% | |
| AUD | -0.14% | -0.20% | -0.46% | -0.04% | -0.14% | -0.21% | -0.37% | |
| NZD | -0.02% | 0.01% | -0.23% | 0.07% | 0.03% | 0.21% | -0.16% | |
| CHF | 0.10% | 0.15% | -0.11% | 0.15% | 0.18% | 0.37% | 0.16% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
USD/MXN 4-Hour Chart
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
