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Mexican Peso remains firm, extending its gains on soft US, Fed rate cut speculations


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  • Mexican Peso strengthens against the US Dollar, with USD/MXN falling below 17.37 after a peak of 17.62.
  • The USD/MXN decline is supported by speculation the Federal Reserve might halt its monetary tightening.
  • US Treasury bond yields plunged after the US CPI report; traders eye Fed rate cuts in June 2024.
  • Banxico’s Governor Victoria Rodriguez Ceja hinted at the possibility of rate cuts in Mexico, noting that any monetary policy easing would be gradual and data-dependent.

Mexican Peso (MXN) skyrockets against the US Dollar (USD) as investors speculate the Federal Reserve (Fed) has finished tightening monetary policy following a softer-than-expected inflation report in the United States (US). Late in the North American session, the USD/MXN pair accelerated toward the 100-day Simple Moving Average (SMA) at 17.33 after hitting a daily high of 17.62, and it is posting losses of more than 1.30% at the time of writing.

A scarce Mexico’s economic docket kept traders adrift to the release of October’s Consumer Price Index (CPI) in the US, with figures coming below estimates and previous readings, both annually and monthly. Core CPI also slowed down, prompting investors to buy riskier assets to the detriment of the US Dollar’s safe-haven status. Consequently, US Treasury bond yields are plunging, while traders are expecting the federal funds rate to hit 5% in June 2024.

Daily digest movers: Mexican Peso climbs as US inflation slows down, despite Banxico’s Rodriguez dovish remarks

  • US October CPI rose by 3.2% YoY, below forecasts and the previous month’s rate, respectively at 3.3% and 3.7%. On a monthly basis, CPI inflation was 0%, way beneath consensus expectations and September’s rate, each at 0.1% and 0.4%.
  • Core CPI inflation stood above 4% YoY, easing below September’s and the estimated 4.1%. On month-over-month readings, inflation cooled to 0.2%, beneath last month’s and the forecast of 0.3%.
  • Richmond Fed President Thomas Barkin said he’s not convinced inflation is on a smooth glide path to 2%. He fears more needs to be done to curb inflation.
  • On Monday, Banxico’s Governor Victoria Rodriguez Ceja commented that the easing inflationary outlook could pave the way for discussing possible rate cuts. She said that monetary policy loosening could be gradual but not necessarily imply continuous rate cuts, adding that the board would consider macroeconomic conditions, adopting a data-dependent approach.
  • The latest inflation report in Mexico, published on November 9, showed prices grew by 4.26% YoY in October, below forecasts of 4.28% and prior rate of 4.45%. On a monthly basis, inflation came at 0.39%, slightly above the 0.38% consensus and September’s 0.44%.
  • Last Thursday’s hawkish remarks by the US Federal Reserve Chairman Jerome Powell sponsored the USD/MXN a leg up, toward 17.93, before paring some losses.
  • Mexico’s economy remains resilient after October’s S&P Global Manufacturing PMI improved to 52.1 from 49.8, and the Gross Domestic Product (GDP) expanded by 3.3% YoY in the third quarter.
  • Banxico revised its inflation projections from 3.50% to 3.87% for 2024, which remains above the central bank’s 3.00% target (plus or minus 1%).

Technical Analysis: Mexican Peso surges with USD/MXN sellers eyeing a break below the 100-day SMA

The USD/MXN pair bias has shifted to neutral downwards in the short term, and the pair is on the brink of breaking crucial support levels like the 100-day Simple Moving Average (SMA) at 17.33, followed by the psychological 17.00 figure. A breach of those demand areas could open the door to testing the year-to-date (YTD) low of 16.62, printed in July.

On the other hand, if buyers keep the exotic pair above 17.33 and reclaim 17.50 in the near term, they could remain hopeful of testing key resistance levels, like the 200-day SMA at 17.65, ahead of the 50-day SMA at 17.70. Once cleared, the next resistance emerges at the 20-day SMA at 17.87 before buyers could lift the spot price towards the 18.00 figure.

Central banks FAQs

Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.

A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.

A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.

Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.