Mexican Peso tumbles on Fed’s hawkish remarks, Banxico’s dovish tone

• Mexican Peso hits a six-day bottom on Bostic comments.
• Banxico minutes reveal concerns over Mexico’s slowing economy and sticky service inflation, hinting at more rate cuts.
• US inflation data came in slightly higher than expected, but weaker jobs data tempered the possibility of aggressive Fed cuts.

The Mexican Peso lost some ground against the Greenback after hitting a six-day low of 19.61 following the release of US data. In addition, the Bank of Mexico revealed its September meeting minutes, in which the central bank hints that further interest rate adjustments loom. The USD/MXN trades at 19.52, up 0.18%.

Banxico’s minutes showed that all members agreed that the economy is weakening and acknowledged that it has been losing steam since Q4 2023. Consequently, they mentioned that consumption slowed, and some members even said it stagnated.

Regarding investment, the minutes showed that it “has continued registering a lack of dynamism since mid-2023. They noted that this was observed in all its categories.

In the meantime, most members agreed that Mexico’s inflation has been improving, though it is still facing challenges. All Banxico officials stated that service inflation remains stickier. Despite this, the central bank noted that “the Board expects that the inflationary environment will allow further reference rate adjustments,” opening the door for additional rate cuts.

Aside from this, the latest US inflation report showed that the Consumer Price Index (CPI) in the headline and underlying figures were slightly higher than foreseen, which might warrant no rate cuts if not for weaker US jobs data. Initial Jobless Claims for the week ending October 5 jumped sharply.

Meanwhile, Federal Reserve (Fed) officials continued to cross newswires. Chicago Fed President Austan Goolsbee said inflation came near estimates, adding that data showing no deterioration in unemployment would “relieve” some concerns.

The New York Fed’s John Williams said the economy would allow for additional rate cuts. He added that they would remain data-dependent. He expected inflation to end at 2.25% in 2024 and GDP to hit 2.25% to 2.50% by the end of the year.

Recently, Atlanta Fed President Raphael Bostic, a voter in the FOMC in 2024, commented that he’s open to skipping rate cuts in November, according to The Wall Street Journal.

In the meantime, the US Dollar Index (DXY), which tracks the buck’s performance against six other currencies, climbs 0.23% to 103.10, underpinned by the jump in US Treasury yields.

Daily digest market movers: Mexican Peso retreats on Banxico’s dovish minutes

• Last Thursday, Mexico’s Supreme Court voted eight to three to “consider a constitutional challenge to the controversial judicial overhaul enacted last month,” which would allow the election of judges and Supreme Court magistrates through electoral vote.
• The Mexican Peso appreciated following the release of the latest meeting minutes, even though it showed that Banxico is expected to continue lowering borrowing costs.
• According to Banxico’s poll, the central bank is projected to lower rates by 50 bps to 10% for the remainder of 2024. Meanwhile, the USD/MXN exchange rate will end at around 19.69.
• Mexico’s economy is projected to grow by 1.45% in 2024, lower than August’s 1.57%.
• US September CPI was 2.4% YoY, exceeding estimates of 2.3% yet below August data. Core CPI rose by 3.3% YoY, up from forecasts and August’s 3.2%.
• CPI rose by 0.2% monthly, unchanged from the previous month, up from the 0.1% projected by the consensus. Core CPI was unchanged at 0.3% above estimates of 0.2%.
• Initial Jobless Claims for the week ending October 5 rose by 258K, up from 225K the previous week, above estimates of 230K.
• Data from the Chicago Board of Trade via the December fed funds rate futures contract shows investors estimate 47 bps of easing by the Fed toward the end of 2024.

USD/MXN technical outlook: Mexican Peso extends losses as USD/MXN jumps above 19.50

The USD/MXN is upwardly biased, as it remains above the 50-day Simple Moving Average (SMA) at 19.39, which could open the door for further upside. Short-term momentum favors buyers as the Relative Strength Index’s (RSI) reading depicts. Therefore, the exotic pair is headed to the upside.

If USD/MXN clears the psychological 19.50 level, look for buyers driving the exchange rate toward the October 1 daily high of 19.82, ahead of 20.00. Up next would be the YTD peak of 20.22.

For a bearish resumption, if USD/MXN drops below the October 4 wing low of 19.10, the 19.00 figure will be exposed. Once broken, the next support would be the 100-day SMA at 18.64.