Concerning the US dollar (USD), the Mexican Peso (MXN) gained value and is expected to end the week up 0.31%. The US Federal Reserve (Fed) may be able to decrease interest rates in the second half of the year if data from the US confirms the ongoing downward trend in inflation. As of right now, the USD/MXN is down 0.36% on the day, trading at 17.09.

• USD/MXN drops as revised US inflation data fuel expectations for Fed easing.
• US inflation adjustments show success in price control, leading to a weakened Dollar outlook.
• Banxico holds rates at 11.25%, with changes in policy statements indicating a careful stance on future adjustments.
• Federal Reserve officials continue to advocate for the appropriateness of current monetary policy.

Over the past two days, Mexico’s economic agenda has been quite full. The Bank of Mexico (Banxico) decided to maintain rates at 11.25% despite inflation being expected to rise. However, the bank eliminated hawkish language from its monetary policy statement. Instead, they stated, It will evaluate, based on available information, the possibility of adjusting the reference rate in the next monetary policy meetings.

 

Raphael Bostic, the Atlanta Fed President, stated that the Fed needs to be steadfast and that he is “laser-focused” on inflation from beyond the border. However, Dallas Fed President Lorie Logan stated that there is no pressing need to lower interest rates.

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Daily digest market movers: Mexican Peso appreciates despite Banxico dropping hawkish comments

• Banxico’s Governing Council stated that inflationary risks are tilted to the upside in the near term. Higher core inflation, foreign exchange depreciation, and a greater-than-expected economic resilience would keep inflationary pressure up.
• On the downside, a global economic slowdown and lower exchange rate levels in relation to the first months of 2023 “contribute more than anticipated to reduce certain pressures on inflation.”
• Mexico’s central bank revised their inflation expectations to the upside for Q1 to Q3 of 2024, and they expected to converge toward 3.5% in Q4.
• Before Wall Street opened, the National Statistics Agency (INEGI) announced that Mexican Industrial Production fell 0.7% in December from November and was flat YoY.
• On Thursday, INEGI revealed that in January, Mexico’s Consumer Price Index (CPI) rose by 4.88% YoY, while underlying inflation moderated to 4.76%.
• The US Bureau of Labor Statistics (BLS) revised inflation data, indicating that US inflation rates at the end of 2023 were consistent with initial reports, even after annual revisions. The core CPI, which excludes food and energy, increased at a 3.3% annualized rate in Q4 2023, aligning with previous estimates. The headline inflation figure saw minimal adjustments, with December’s monthly rise slightly revised down to 0.2% from 0.3%.
• US Initial Jobless Claims of 218K for the last week were lower than estimates of 220K, down from 227K in the previous reading.
• US Federal Reserve officials remain cautious about guiding market participants about when they would begin easing policy. Yesterday, Richmond Fed President Thomas Barkin was asked about Powell’s comments: “Chairman Powell always speaks for the Committee.”

Technical analysis: Mexican Peso surges as USD/MXN tumbles below 17.10

Following a run-in with the 50-day Simple Moving Average (SMA) at 17.12, where buyers could not firmly break through, the USD/MXN is now neutral to downward biased. The exotic pair has since resumed its downward trend. However, it may still be trading in the 17.05–17.17 region. The Relative Strength Index (RSI) indicates that bears are gaining traction, with the slope peaking two days ago before continuing its downward trend, indicating further downside ahead. The following support levels are the psychological 17.00 number, 17.05, and the low of 16.62 from the previous year.

 

However, if buyers recapture the 50-day SMA, a test of the 200-day SMA at 17.31 may be possible. Once that barrier is removed, downside risks become apparent. Real resistance next appears at the 100-day SMA, which is 17.41.