- The Mexican Peso experienced a significant drop of over 1% as the USD/MXN exchange rate exceeded 17.90.
- Fitch maintains Mexico’s BBB- rating, emphasizing concerns over judicial reform and fiscal deficit.
- Unemployment claims in the US have increased, causing a rise in the US Dollar Index above 104.00 and resulting in a gain of 0.25%.
Thursday’s trading session saw the Mexican Peso start off on a weaker note against the Greenback as cautious investors opted for lower-risk options. Meanwhile, the Greenback maintained its strength and recovered some of the losses from Wednesday. The USD/MXN is currently trading at 17.92, which is 1.30% higher than its initial price.
Mexico’s economic calendar continues to be empty, leaving traders without clear direction and relying on market sentiment and the movements of the US Dollar. Meanwhile, Fitch ratings have once again confirmed Mexico’s BBB qualification with a stable outlook.
In additional remarks, Fitch disclosed that the suggested judicial reform would have an adverse effect on Mexico’s institutional profile, but it is still too soon to measure the consequences. The credit rating agency expressed concerns about the upcoming administration’s ability to reduce the fiscal deficit and predicted a minor economic slowdown in 2025. Additionally, they highlighted Mexico’s potential vulnerability due to trade tensions with the US.
Fitch evaluations were conducted following the International Monetary Fund (IMF) revision of Mexico’s projected Gross Domestic Product (GDP) for 2024. The IMF lowered the expectations from 2.4% to 2.2% due to the country’s economic deceleration and the downturn in the United States.
On the other side of the border, the US Bureau of Labor Statistics (BLS) has reported that unemployment claims in the US have exceeded expectations and the previous week’s figures, suggesting a slight weakness in the job market. Continuing claims also rose and reached their peak since November 2021.
The Greenback surged following the data, as the US Dollar Index (DXY), which monitors the dollar’s worth against the remaining six currencies, rebounded above 104.00, registering a 0.25% increase.
Mexican Peso Stumbles as US Dollar Gains Strength
- Mexico’s economic calendar will be empty for the week. It will only resume on July 22 with the release of growth figures for May by the National Statistics Agency (INEGI). However, policymakers at the Bank of Mexico (Banxico) and political events have the potential to disrupt the situation.
- The latest data from the BLS on US Initial Jobless Claims indicates that the number of individuals applying for unemployment benefits in the week ending July 13 was higher than expected, reaching 243K. This figure surpassed the previous week’s reading of 223K.
- Investors were rattled by Bloomberg’s interview with Donald Trump, in which the former US President expressed his support for tax cuts, decreased interest rates, and tariffs. Trump specifically mentioned a significant increase of 60% to 100% on China’s products and a 10% increase in tariffs for other countries.
- According to the CME FedWatch Tools, there is an extremely high probability of a 0.25% reduction in the federal funds rate in September, with the chances currently standing at 98%.
- The June consumer inflation data in the United States came in below expectations, which has raised the likelihood of the Federal Reserve reducing borrowing costs in 2024 by at least 52 basis points, as indicated by the December 2024 Fed Funds rate futures contract.
The Mexican Peso Continues to Lose Value as the USD/MXN Exchange Rate Rises Above 17.90
On Wednesday, USD/MXN reached its lowest point near the 50-day Simple Moving Average (SMA) following a decline of over 2.50% as the Mexican currency gained value. Nevertheless, purchasers had intervened, establishing a support level at approximately 17.58-17.60.
Currently, the unique currency pair is experiencing a solid rally above the 17.90 level after fluctuating in the previously mentioned region, indicating a potential test of the significant 18.00 threshold.
The momentum shifted in favor of buyers as the Relative Strength Index (RSI) started to rise and crossed above its neutral line, suggesting that bullish sentiment is gaining strength.
If the USD/MXN continues to strengthen above the significant 18.00 level, it will reveal critical levels of resistance. If the current level is surpassed, the next target would be the high reached on July 5 at 18.19, followed by the high on June 28 at 18.59. This would provide an opportunity for buyers to set their sights on the year-to-date high at 18.99.
If the USD/MXN pair manages to break below the 50-day simple moving average at 17.63, it could potentially open the door to test the previous high on December 5 at 17.56 and then potentially target the 200-day simple moving average at 17.27. Additional declines would challenge the 100-day Simple Moving Average (SMA) at 17.21.