- Mexican Peso drops 0.46%, reaching a six-day high of 20.26 following INEGI reports of weak Aggregate Demand and plummeting Private Spending.
- The Fed maintains steady rates; Powell highlights rising economic uncertainty and inflation risks from tariffs.
- US data shows mixed signals; jobless claims increase, Philadelphia Fed Manufacturing Index indicates economic slowdown.
The Mexican Peso (MXN) is extending its losses versus the US Dollar (USD) on Thursday, as Mexico’s economic data paints a gloomy outlook. At the same time, traders continued to assess the latest Federal Reserve (Fed) monetary policy decision. USD/MXN is trading at 20.13, up 0.46%.
The Peso weakened sharply early as USD/MXN rose to a six-day high of 20.26 as the Instituto Nacional de Estadistica Geografia e Informatica (INEGI) revealed several economic data. First, INEGI revealed that Aggregate Demand on a quarterly and yearly basis dipped but continued to expand.
On the other hand, Private Spending plunged in the fourth quarter of 2024. At the same time, the statistics agency revealed the preliminary reading of the Global Indicator of Economic Activity for February, which suggests Mexico’s economy slowed down on yearly figures despite improving monthly.
On Wednesday, the Fed kept rates unchanged and announced it would slow the pace of the balance sheet reduction. Officials acknowledged that the labor market is solid but recognized that inflation is “somewhat” elevated.
After releasing the monetary policy statement, Fed Chair Jerome Powell stated that economic uncertainty has increased, noting that some tariff-driven inflation has been passed on to consumers. Powell said, “Our current policy stance is well positioned to deal with the risk and uncertainties we face,” adding that the central bank is in no rush to cut rates.”
Aside from this, US economic data was mixed. The number of Americans filing for unemployment claims rose, but it was mostly below estimates, while the Philadelphia Fed Manufacturing Index showed signs of cooling down.
Daily digest market movers: Mexican Peso tumbles as data shows economy slowed in February
- Mexico’s Aggregate Demand in Q4 2024 was 0% down from 1.2% QoQ. On an annual basis, demand dipped from 2.3% to 1.9%, aligned with the consensus.
- Private Spending for Q4 plunged by 1.4%, down from 1.1% growth. In the twelve months for the same period, it barely grew 0.4%, beneath Q3’s 3% increase.
- Mexico’s Global Indicator of Economic Activity fell 0.7% YoY in February from the previous month a year earlier, revealed INEGI. Compared to January, the economy most likely grew 0.2% MoM.
- The Organization for Economic Cooperation and Development (OECD) revealed earlier this week that US tariffs on Mexican products could spur a recession in Mexico. If duties remain unchanged, the OECD projects that Mexico’s economy will shrink 1.3% in 2025 and 0.6% in 2026.
- Via the Summary of Economic Projections (SEP), Fed officials expect two rate cuts in 2025, with rates reaching 3.9%, unchanged from December’s projections. The Fed’s favorite inflation gauge, the Personal Consumption Expenditures (PCE) Price Index, and the Unemployment Rate were revised higher. At the same time, GDP growth is now expected to dip below 2%, reflecting a slowdown spurred by US President Donald Trump’s trade policies.
- Initial Jobless Claims for the week ending March 15 ticked up from 221K to 223K, but was below forecasts of 224K. Meanwhile, the Philadelphia Fed Manufacturing Index dipped from 18.1 to 12.5 in February.
- Traders had priced the Fed to ease policy by 68 basis points (bps) throughout the year, as revealed by data from the Chicago Board of Trade (CBOT).
USD/MXN technical outlook: Mexican Peso retreats as USD/MXN climbs above 20.10
USD/MXN bounced off yearly lows reached on March 14 at 19.84, though it faces stiff resistance at the 100-day Simple Moving Average (SMA) at 20.35.
Momentum seems constructive for buyers, as depicted by the Relative Strength Index (RSI), which cleared the latest through despite remaining below its neutral line. This means that bulls are gathering steam.
Therefore, if USD/MXN closes on a daily basis above 20.00, look for some upside, with key resistance at 20.35, the 50-day SMA at 20.41, and the psychological 20.50 barrier. On the flipside, the first key support is the YTD low of 19.84, ahead of the 200-day SMA at 19.68.
Banxico FAQs
The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican Peso (MXN), and to set the monetary policy. To this end, its main objective is to maintain low and stable inflation within target levels – at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%.
The main tool of the Banxico to guide monetary policy is by setting interest rates. When inflation is above target, the bank will attempt to tame it by raising rates, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN. The rate differential with the USD, or how the Banxico is expected to set interest rates compared with the US Federal Reserve (Fed), is a key factor.
Banxico meets eight times a year, and its monetary policy is greatly influenced by decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee usually gathers a week after the Fed. In doing so, Banxico reacts and sometimes anticipates monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico did it first in an attempt to diminish the chances of a substantial depreciation of the Mexican Peso (MXN) and to prevent capital outflows that could destabilize the country.
