- The Mexican Peso is currently being compared to the US Dollar as the USD/MXN pair shows significant progress, reaching a value of 17.53.
- The economic agenda of Mexico unveiled that Gross Fixed Investment experienced a decrease every month in September.
- Money market futures anticipate that the US Federal Reserve will decrease rates by over 130 basis points towards the conclusion of the upcoming year.
The Mexican Peso (MXN) experienced a decline in value compared to the US Dollar (USD) throughout the North American session due to the strengthening of US Treasury bond yields, which supports the US Dollar. Despite the efforts of Jerome Powell, the US Federal Reserve (Fed) Chair, to resist the expectations of a rate cut, he was ultimately unsuccessful. However, the exchange rate between the United States dollar and the Mexican Peso, known as USD/MXN, does not indicate this, as it currently hovers around 17.49, experiencing a daily increase of over 1.90%.
According to the National Statistics Agency, INEGI, it was reported that Gross Fixed Investment in Mexico experienced a decline of -1.5% on a month-on-month basis in September. The identical measures experienced a growth of 21.9% over twelve months until September, exhibiting a deceleration from the 29.2% growth observed in the August reading.
On a recent Friday, the Bank of Mexico (Banxico) disclosed that remittances in October experienced an increase of $5.81 billion. Nevertheless, the devaluation of the Peso adversely affected the worth of remittances sent by Mexicans residing abroad. According to analysts from Goldman Sachs, cited by Reuters, remittances experienced a decline of 2.3% and 6.3% in real terms when considering the appreciation of the Mexican currency.
In the meantime, on Friday, a statement was made by Fed Chair Powell that further proof of the disinflationary procedure in the US is needed, despite the acknowledgment of a decline in prices. However, caution was expressed that it is premature to proclaim triumph over inflation, and it was further mentioned that the Federal Reserve is prepared to increase interest rates if deemed necessary.
In contrast to Powell’s statements, the anticipation of reductions in interest rates by the US central bank in the coming year has been factored into money market futures. These futures have already accounted for a reduction of over 130 basis points, with the initial decrease projected to occur as early as May 2024.
The yields of US Treasury bonds are experiencing an increase, with the coupon rate of the 10-year compare note standing at 4.255%. This development is providing support for the US dollar. The performance of the US Dollar Index (DXY), which monitors the currency’s value about a collection of six other currencies, has increased by 0.46% and is currently at 103.66.
Gains Made by the Mexican Peso on Friday Were Reversed
- The economic growth forecast 2023 has been revised by Banxico, increasing it from 3% to 3.3%. Additionally, the projected economic rise for 2024 has been adjusted to 3%, up from the previous forecast of 2.1%.
- About inflation prospects, the Mexican central bank predicts that headline inflation will reach 4.4% in Q4 2023 (with core inflation at 5.3%), and by the end of 2024, it is projected to be around 3.4% (with core inflation at 3.3%). The institution predicts that headline and core inflation will reach the 3% target the central bank set in 2025.
- In October, the Core PCE Price Index rate, which the Federal Reserve favors as an inflation gauge, experienced a decrease from 3.7% to 3.5% year over year. Additionally, the PCE inflation headline experienced a decline from 3.4% to 3.0% year over year during the corresponding twelve-month duration.
- On November 27, a statement was made by Banxico’s deputy governor, Jonathan Heath, suggesting a need for further reduction in core prices. There might be a possibility of one or two rate cuts in the upcoming year, but these adjustments would be implemented slowly and cautiously.
- On November 24, a report was released indicating that the economy in Mexico experienced growth as anticipated during the third quarter, both on an annual and quarterly basis. This suggests that the Bank of Mexico will likely maintain its hawkish stance despite allowing for potential easing measures.
- According to data on November 23, there was an increase in Mexico’s annual inflation from 4.31% to 4.32%, while the core inflation rate continued to decrease from 5.33% to 5.31%.
- Based on a poll conducted by Citibanamex, 25 of 32 economists have indicated that Banxico’s initial rate reduction is anticipated to occur within the first six months of 2024.
- According to Citibanamex, the poll indicates a significant range of interest rates for the upcoming year, from 8.0% to 10.25%.
- In response to the survey above, economists have indicated that the projected annual inflation rate for the upcoming year is 4.00%, with the core inflation rate estimated to be 4.06%. Additionally, the USD/MXN exchange rate is expected to reach 19.00 by the conclusion of 2024, showing a slight increase from its previous value of 18.95.
Mexican Peso Falls When USD/MXN Rises Over the 100-day Simple Moving Average (SMA)
The USD/MXN shows an upward trend on the daily chart, indicating a potential move towards the 100-day Simple Moving Average (SMA) at 17.36. A potential breach of the level above might lead to the exposure of the daily high on November 30, which stands at 17.49, followed by a test of the 200-day simple moving average at 17.56. If purchasers regain that particular level, there would be no obstacles to contesting the 50-day SMA at 17.69.
On the other hand, there is a potential for a bearish continuation if the USD/MXN remains below the 100-day SMA and declines below the 17.20 region. Upon completion, the initial area of interest would manifest as the 17.05 level, preceding the prior trough of 17.03 observed on November 27. Should the pair fall below said threshold, the psychological value of 17.00 would come into play.