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Mexican Peso dives to two-day low after hot US inflation data


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  • Mexican Peso dips against a strengthening US Dollar after February’s US inflation report exceeds expectations.
  • Mexico’s Industrial Production in January meets forecasts, while US CPI figures push USD/MXN higher.
  • Fed’s cautious stance on policy easing was underscored by recent inflation trends with eyes on the March meeting.

The Mexican Peso loses some ground on Tuesday against the US Dollar, which appreciated following February’s inflation report in the United States that showcased price level growth remaining stubbornly high. This led to the selling of US Treasuries. Consequently, yields rose, a tailwind for the Greenback. The USD/MXN trades at 16.81, up 0.14%, after hitting a daily low of 16.76.

The National Statistics Agency, INEGI, revealed that Mexico’s Industrial Production in January expanded, aligning with the consensus. In the meantime, the US Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) for February was higher than expected in annual figures and aligned with forecasts on monthly readings. The Core CPI figures were mixed, with annual figures decelerating, while monthly data stood unchanged compared to January’s number.

The US inflation data, a key factor in the Federal Reserve’s policy decisions, has justified the Fed’s stance of being patient regarding easing interest rates. Fed Chair Jerome Powell and his colleagues have expressed the need for more evidence before considering any borrowing cost cuts. The next Fed meeting is scheduled for March 19-20.

Daily digest market movers: Mexican Peso trips down after US CPI

  • Mexico’s Industrial Production in January rose by 0.4% MoM as expected, up from -0.7%. In the twelve months to January, production increased by 2.9%, above estimates, smashing December’s 0% reading.
  • US CPI in February came at 0.4% MoM, aligned with estimates that were up from 0.3%. Annually based, prices jumped from the 3.1% estimate and the previous reading to 3.2%.
  • Core prices expanded 0.4% MoM, unchanged, up from estimates of 0.3% MoM; yet they slowed in the 12 months to February to 3.8% from 3.9%.
  • Business activity in the sector segment in the US remained mixed, while Factory Orders plummeted. According to the ADP Employment Change report, the labor market cooled further, even though private hiring remained solid. January’s Nonfarm Payrolls report was revised downward, which triggered a reaction in the swaps market.
  • A Reuters poll showed investors estimate the Fed to be the first central bank to cut rates in June.
  • Meanwhile, 52 of 108 economists expect the Fed to cut rates by 75 basis points in 2024, with 26 saying 100 bps.
  • A Reuters poll sees the Mexican Peso depreciating 7% to 18.24 in 12 months from 16.96 on Monday, according to the median of 20 FX strategists polled between March 1-4. The forecast ranged from 15.50 to 19.00.
  • A Reuters poll shows 15 analysts estimate that inflation will slow down in February, corroborating bets that the Bank of Mexico (Banxico) could cut rates as soon as the March 21 meeting.
  • Banxico’s private analysts’ poll projections for February were revealed. They expect inflation at 4.10%, core CPI at 4.06%, and the economy to grow by 2.40%, unchanged from January. Regarding monetary policy, they see Banxico lowering rates to 9.50% and the USD/MXN exchange rate at 18.31, down from 18.50.
  • During Banxico’s quarterly report, policymakers acknowledged the progress on inflation and urged caution against premature interest rate cuts. Governor Victoria Rodriguez Ceja said adjustments would be gradual, while Deputy Governors Galia Borja and Jonathan Heath called for prudence. The latter specifically warned against the risks of an early rate cut.
  • Banxico updated its economic growth projections for 2024 from 3.0% to 2.8% YoY and maintained 1.5% for 2025. The slowdown is blamed on higher interest rates at 11.25%, which sparked a shift in three of the five governors of the Mexican Central Bank, who are eyeing the first rate cut at the March 21 meeting.
  • The CME FedWatch Tool shows traders increased their bets for a 25-basis-point rate cut in June, down from 72% a day ago to 68%.

Technical analysis: Mexican Peso loses a step as USD/MXN edges high above 16.80

Since falling below the 17.00 figure, the USD/MXN downtrend remains intact. However, it appears that it’s losing steam. As the Relative Strength Index (RSI) studies despite standing in bearish territory, its slope is aiming up, breaking previous lows. This could indicate that buyers are entering the market and opening the door for an upward correction.

Despite that, they need to reclaim the 17.00 figure, which could open the door to testing the 50-day Simple Moving Average (SMA) at 17.04, followed by the confluence of the 200-day SMA and the 100-SMA at 17.23.

On the other hand if the downtrend continues, traders are eyeing a break of the year-to-date low of 16.76, followed by last year’s low of 16.

USD/MXN Price Action – Daily Chart

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.