- The Mexican Peso trades mixed in key pairs after the release of the Banxico June meeting Minutes.
- The Peso is higher against the US Dollar but is down versus the Pound Sterling.
- USD/MXN is falling to a target at the end of the wave C of a Measured Move pattern.
The Mexican Peso (MXN) trades mixed in its major pairs on Friday as markets digest recent market-moving data. MXN is up against the US Dollar (USD) and the Euro (EUR) but marginally down against the Pound Sterling (GBP), which gained support after the release of solid UK Gross Domestic Product (GDP) data on Thursday.
MXN rises against the USD despite the release of higher-than-expected factory-gate inflation data in the form of the Producer Price Index (PPI) for June. To an extent the PPI release balanced out a surprise drop in the US Consumer Price Index (CPI) for June, released Thursday.
The Peso is additionally impacted by the release of the Minutes of the Bank of Mexico (Banxico) June meeting.
At the time of writing, one US Dollar (USD) buys 17.70 Mexican Pesos, EUR/MXN trades at 19.28, and GBP/MXN at 22.95.
Mexican Peso remains supported despite rate-cut dissenter
The Mexican Peso trades variably in its key pairs on Friday as markets digest the release of the Minutes of the Banxico June policy meeting.
The Peso is holding up despite a change in the distribution of voting at the meeting that suggests interest-rate cuts are on their way.
The Minutes showed that one dissenter (Banxico Deputy Governor Omar Mejía) voted for an interest rate cut of 0.25%, compared to no one voting for a cut at the previous May meeting.
The ten key takeaways from the Minutes are as follows:
- The majority of members agreed that Mexico’s economic activity continued to exhibit the weakness observed since the end of 2023.
- Looking ahead, the balance of risks for the economy were biased to the downside.
- Most members indicated that “private consumption has remained strong in Mexico.”
- One member made the point that “there is the risk that private investment will continue losing dynamism, considering the tight financial conditions and the environment of greater uncertainty generated by financial volatility in Mexico, as well as by the upcoming electoral process in the United States.”
- All members noted the employment market continued to be strong but added it had also “shown some signs of moderation,” which compared to more unequivocal phrasing from the May Minutes.
- The June Minutes stated that headline inflation rose due to non-core effects whilst core inflation had continued to fall – the same as in May.
- There was less emphasis on the impact of high services sector inflation, although, “Some members mentioned that services inflation remains above 5%. One member pointed out that it registered 5.19% in the first fortnight of June.”
- That said, the Minutes stated that the balance of risks to the inflationary outlook remained to the upside, and “Most members highlighted as an upward risk the persistence of core inflation, especially of its services component.”
- The inflationary impact of the recent depreciation of the Peso had been offset by lower economic activity.
- Most members expect headline inflation will converge with Banxico’s 3.0% target in Q4 2025.
Technical Analysis: USD/MXN continues steady decline
USD/MXN continues declining in what is likely the wave C of a falling Measured Move pattern that has formed since the June 12 high.
USD/MXN Daily Chart
Measured Moves (MM) are large, three-wave zig-zags in which the end of wave C can be estimated with some degree of reliability using the length of wave A as a guide. C is usually equals A or, at least, a Fibonacci ratio of A.
USD/MXN has already reached the conservative target for wave C, calculated as the 0.618 Fibonacci ratio of the length of wave A. Given that the pair has reached this lesser target, there is a risk it may reverse and start recovering.
A break below 17.70 (July 12 low), however, would reinvigorate bears and probably lead to a move down to the target at the end of wave C, at roughly the level of the 50-day Simple Moving Average (SMA) situated at 17.60.
Meanwhile, the direction of the medium and long-term trends remain in doubt.
Banxico FAQs
The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican Peso (MXN), and to set the monetary policy. To this end, its main objective is to maintain low and stable inflation within target levels – at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%.
The main tool of the Banxico to guide monetary policy is by setting interest rates. When inflation is above target, the bank will attempt to tame it by raising rates, making it more expensive for households and businesses to borrow money and thus cooling the 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. The rate differential with the USD, or how the Banxico is expected to set interest rates compared with the US Federal Reserve (Fed), is a key factor.
Banxico meets eight times a year, and its monetary policy is greatly influenced by decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee usually gathers a week after the Fed. In doing so, Banxico reacts and sometimes anticipates monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico did it first in an attempt to diminish the chances of a substantial depreciation of the Mexican Peso (MXN) and to prevent capital outflows that could destabilize the country.
