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As Risk Appetite Improves, the Mexican Peso Continues to Surge Toward Previously Unheard-of Highs on Thursday

Leon Kramer

ByLeon Kramer

Dec 24, 2023

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  • The Mexican Peso has been supported by improving market sentiment.
  • The upcoming release of Mexico’s Trade Balance report on Friday is expected to be influenced by the prevailing inflationary pressures in the US, notably the US PCE Price Index.
  • The recent unexpected decline in US inflation signals has dampened risk appetite despite various economic indicators.

The Mexican Peso (MXN) is experiencing a recovery on Thursday, strengthening toward the US Dollar (USD) as global markets are selling off the US currency. This is happening even though the US data released today has shown mixed results.

On Thursday, more comprehensive economic data from Mexico was needed. However, the focus is shifting towards releasing November’s Mexico Trade Balance figures on Friday. These figures may receive less attention due to the imminent release of the US Personal Consumption Expenditures (PCE) Price Index.

The Mexican Peso experienced a decline on Wednesday due to a general decrease in the stock market and other high-risk investments. However, this decline was reversed on Thursday as the market experienced increased volatility, and analyzing and understanding market movements became more challenging.

As a result of a Risk-Taking Revival, the Mexican Peso Has Returned to Its Past Highs

  • The Mexican Peso has experienced a resurgence against the US Dollar, reaching levels commonly observed due to the recent rally in stock markets.
  • The recent increase in overall market confidence has led to a modest Mexican Peso (MXN) appreciation of approximately 0.5% against the United States Dollar (USD).
  • The inflation rate in Mexico for the first half of December exceeded expectations but still decreased compared to the previous period. It was recorded at 0.52% for the initial two weeks of the month, slightly higher than the projected decline of 0.4%.
  • On Thursday, the Greenback exhibited the poorest performance among major currencies.
  • The recent moderation in inflation and growth indicators in the United States has led to increased speculation in the market regarding additional interest rate reductions in 2024.
  • The number of US Initial Jobless Claims increased to 205,000 from the revised figure of 203,000 (originally reported as 202,000). This result fell short of the market’s expectation of 215,000.
  • The market’s anticipated reduction in money market rates has exceeded the projections outlined by the Federal Reserve’s dot plot. Investors are predicting a decrease of 160 basis points in interest rates for 2024, while the Federal Reserve’s projections indicate a more modest reduction of 75 basis points.
  • The US Core Personal Consumption Expenditures (PCE) inflation rate reached 2.0% during the third quarter, lower than the median market prediction of the remaining 2.3%.
  • The US Annualized Gross Domestic Product (GDP) fell short of expectations, with a recorded value of 4.9% instead of the projected 5.2%.
  • It is anticipated that Mexico’s trade balance in November, measured in USD, will recover from a negative value of -252 million to a positive value of 404 million.
  • The upcoming release of November’s Year-over-Year US Core PCE Price Index inflation is expected to decrease from 3.5% to 3.3%. This data will be significant for the market as it will influence the overall direction leading into the holiday break.

The Current Value of the United States Dollar

The following table displays the percentage fluctuations of the US Dollar (USD) in various major currencies today. The US Dollar exhibited relative weakness when compared to the Australian Dollar.

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The heat map displays the relative percentage fluctuations of significant currencies close to one another. The base currency is selected from the left column, whereas the currency of the quote is selected from the top row. To illustrate, when choosing the Euro currency from the left column and tracing along the horizontal line to the Japanese Yen, the percentage change indicated in the box will reflect the exchange rate between EUR (base) and JPY (quote).

The Mexican Peso Has Recovered Its Near-Term Resistance Level

The Mexican Peso (MXN) is gaining strength against the US Dollar, causing the USD/MXN pair to move towards the 17.05 level. This comes after the pair reached a new low of 17.02, which was not seen in the past 12 weeks.

Despite recent declines in the USD/MXN exchange rate, the Mexican Peso has little significant momentum. The 50-day and 200-day Simple Moving Averages are clustered just above the 17.50 level, indicating that there will likely be continued consolidation shortly.

For a new low to be established for the year and to initiate a rise in the peso for 2024, it is crucial for the support level at 16.75 to be decisively broken. However, any potential reversals favoring the USD/MXN (US Dollar to Mexican Peso) will likely encounter strong resistance. This is due to a consistent pattern of lower highs aligning with the major daily moving averages and the previous peak in price.

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Leon Kramer

Leon Kramer

Leon Kramer, a renowned financial author, enlightens Main Forex News readers with his deep understanding of currency markets. His years in global finance, combined with an intuitive grasp of trends, delivers insightful, up-to-the-minute foreign exchange analysis.

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