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Mexican Peso treads water as the US Dollar counterattacks
357926 November 30, 2023 23:45 FXStreet Market News
- Mexican Peso weakens as Banxico’s officials discuss easing policy next year.
- Banxico revised up growth prospects for Mexico and expected inflation to cool to its target in 2025.
- The US disinflation process continues, data shows, while traders trim rate cut expectations by the Fed, bolstering the US Dollar.
Mexican Peso (MXN) drops sharply for the second straight day against the US Dollar (USD) in early trading during the North American session on Thursday. The latest data from the United States (US) is sponsoring a leg-up in the Greenback (USD), underpinned by high US Treasury bond yields, a tailwind for the USD/MXN. At the time of writing, the exotic pair exchanges hands below the 17.40 area, printing gains of more than 0.60%.
Mexico’s economic docket witnessed the release of the Unemployment Rate, which came a tenth lower in non-seasonally adjusted figures at 2.7% YoY, below forecasts of 2.8% and beneath September’s 2.9%. The Bank of Mexico (Banxico) revised its economic growth forecasts for 2023 and 2024 to the upside in its quarterly report, released on Thursday. The bank noted that inflation would take longer than expected to dip to the bank’s target, projecting that it would hit the 3% target by 2025.
During Banxico’s presentation of its quarterly economic projections, Governor Victoria Rodriguez Ceja kept the door open for rate cuts, but discussions would be held in the first quarter of 2024. Banxico’s Deputy Governor Jonathan Heath echoed some of Rodriguez’s comments, though he pushed back against easing monetary policy in the first quarter.
Across the border, the United States (US) economic calendar revealed the Federal Reserve’s (Fed) preferred inflation gauge, cooled as expected. Yet after the data, investors trimmed their aggressive Fed rate cut expectations for 2024, while the USD/MXN rose to a daily high of 17.49 before retreating below 17.45.
Daily digest movers: Mexican Peso heavy as the USD/MXN climbs to a new two-week high near 17.50
- Banxico revises economic growth upward from 3% to 3.3% for 2023 and projects the economy would pick up from 2.1% to 3% in 2024.
- Regarding inflation prospects, the Mexican central bank foresees headline inflation at 4.4% in Q4 2023 (5.3% for core), while at the end of 2024, it is estimated at 3.4% (3.3% for core). The central bank forecasts headline and core inflation to not hit the 3% target imposed by the institution until 2025.
- The US Core Personal Consumption Expenditures (PCE), the Fed’s gauge for inflation, rose by 3.5% YoY in October, as expected, below the previous month’s 3.7%.
- Headline inflation measured by the PCE slowed from 3.4% to 3.0% in the last twelve months, as foreseen by analysts.
- Interest rate traders expect 108 basis points of rate cuts by the US Federal Reserve in 2024.
- On November 27, Banxico’s Deputy Governor, Jonathan Heath, commented that core prices must come down more, adding that one or two rate cuts may come next year, but “very gradually” and “with great caution.”
- On November 24, a report revealed the economy in Mexico grew as expected in the third quarter on an annual and quarterly basis, suggesting the Bank of Mexico would likely stick to its hawkish stance, even though it opened the door for some easing.
- Mexico’s annual inflation increased from 4.31% to 4.32%, while core continued to ease from 5.33% to 5.31%, according to data on November 23.
- The financial markets’ narrative that the US Federal Reserve (Fed) is done hiking rates has kept the Greenback on the backfoot, but today, it has found some relief.
- A Citibanamex poll suggests that 25 of 32 economists expect Banxico’s first rate cut in the first half of 2024.
- The poll shows “a great dispersion” for interest rates next year, between 8.0% and 10.25%, revealed Citibanamex.
- The same survey revealed that economists foresee headline annual inflation at 4.00% and core at 4.06%, both readings for the next year, while the USD/MXN exchange rate is seen at 19.00, up from 18.95, toward the end of 2024
Technical Analysis: Mexican Peso could weaken further as USD/MXN buyers target the 200-day SMA
Although the USD/MXN remains bearish, the jump above the confluence of the 20 and 100-day Simple Moving Averages (SMAs), each at 17.34/35, respectively, opened the door to challenge the 17.50 psychological level for the first time since November 14. A decisive break of that level could pave the way for testing the 200-day SMA at 17.57, ahead of challenging the 50-day SMA at 17.69
On the other hand, a retracement back below the confluence of the 20 and 100-day SMAs could sponsor a drop toward the November 29 daily close of 17.25, a strong resistance level, which turned support. Once cleared, the next support would be 17.05.
Mexican Peso FAQs
The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.
The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall 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.
Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.
As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
Euro breaches 1.0900 to reach new multi-day lows
357923 November 30, 2023 23:40 FXStreet Market News
- The Euro keeps the offered stance well and sound against the US Dollar.
- European stocks en route to close with decent gains across the board.
- US PCE, Core PCE matched initial estimates in October.
On Thursday, the Euro (EUR) experienced increased downward pressure against the US Dollar (USD), causing EUR/USD to break below the key support level of 1.0900, reaching fresh multi-day lows.
In contrast, the Greenback gained additional momentum and pushed the USD Index (DXY) back above the 103.00 level against the backdrop of a decent recovery in US yields across different timeframes.
Looking at the broader scenario, the current setting for monetary policy retains an unchanged character, with investors factoring in the potential for prospective interest rate reductions by both the Federal Reserve (Fed) and the European Central Bank (ECB) in the spring of 2024.
Further weakness around the European currency came in response to disappointing figures from the German labour market, where the Unemployment Rate ticked higher to 5.9% in November and the Unemployment Change increased by 22K individuals. Adding to this view, flash Inflation Rate in the broader Eurozone showed the CPI gained 2.4% in the year to November, while the Core CPI rose 3.6% from a year earlier and the Unemployment Rate held steady at 6.5%.
In the US, inflation measured by the headline PCE rose at an annualized 3.0% (from 3.4%) in October and Core PCE increased by 3.5% (from 3.7%). Further data saw Initial Jobless Claims rising by 218K in the week to November 25, Personal Income and Personal Spending both increasing by 0.2% MoM. Later in the session, Pending Home Sales will close the daily calendar.
Daily digest market movers: Euro gives away further ground on Dollar’s bounce
- The EUR faces extra downside against the USD.
- US and German yields reverse the initial pessimism.
- Markets see the Fed trimming its interest rates in Q2 2024.
- Investors also expect the ECB to start reducing its rates in H1 2024.
- ECB’s Fabio Panetta reiterated that the euro bloc still faces downside risks.
Technical Analysis: Euro’s upside now looks capped by 1.1020
The acceleration of the downward trend sees EUR/USD retreating to the proximity of the 1.0900 zone on Thursday, adding to Wednesday’s retracement.
Further weakness could see EUR/USD facing an initial minor suport at 1.0852 (November 22). If cleared, the pair could then challen the key 200-day SMA at 1.0816, ahead of the provisional 55-day SMA at 1.0676. Down from here emerges the weekly low of 1.0495 (October 13) prior to the 2023 low of 1.0448 (October 3) and the round level of 1.0400.
In case bulls regain the upper hand, the pair is expected to meet the next up-barrier at the November high of 1.1017 (November 29) ahead of the August top of 1.1064 (August 10) and another weekly peak of 1.1149 (July 27), all of which precede the 2023 high of 1.1275 (July 18).
Meanwhile, the pair is seen maintaining its constructive outlook while above the 200-day SMA.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day.
EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy.
The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa.
The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control.
Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency.
A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall.
Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
Ford says there is no remaining pent-up demand for cars and no pricing upside
357922 November 30, 2023 23:35 Forexlive Latest News Market News
If you were wondering if autos would be a source of inflationary pressure in 2024 then here is your answer. Ford’s CEO said he sees no remaining pent-up demand for combustion vehicles, so there is no pricing upside.
This article was written by Adam Button at www.forexlive.com.
US Dollar peaks as Chicago PMI delivers cherry on top
357921 November 30, 2023 23:35 FXStreet Market News
- The Greenback trades in the green against all major currencies.
- US traders are seeing PCE confirming sticky pace of inflation.
- The US Dollar Index climbs above 103 and could still flip this week’s overall performance into positive territory.
The US Dollar (USD) bulls are being back by Wednesday and Thursday’s data points, confirming that the US economy is not dead just yet; and that inflation is not coming down that quickly as expected. With the Personal Consumption Expenditures, the preferred inflation gauge from the US Federal Reserve, traders got a look under the hood on what US inflation is doing. It is a much-telling tale of two speeds where cleary European inflation is almost free-falling, while US inflation is rather sticky and only goes down in babysteps.
On the economic front, all, or at least most important datapoints are behind us for this Thursday. The fact that nearly all PCE elements, both Headline and Core Expenditures fell in line of expectations, shows that the Fed is still right to say that inflation is a force to be reckoned with. The Initial Jobless Claims back that view as no major uptick in unemployment is being noted for this week.
Daily digest: Chicago PMI upbeat surprise
- At 13:30 GMT, this Thursday a big batch of data points was released:
- US Initial Jobless Claims are expected to head from 211,00 to 218,000.
- Continuing Jobless Claims were at 1,840,000 and went to 1,927,000.
- Monthly Headline Personal Consumption Expenditures Price Index for October went from 0.4% to 0%.
- Headline Personal Consumption Expenditures Price Index on a yearly basis went from 3.4% to 3%.
- Monthly Core Personal Consumption Expenditures Price Index for October went from 0.3% to 0.2%, as expected.
- Core Personal Consumption Expenditures Price Index on a yearly basis went from 3.7% to 3.5%, as well as expected.
- Personal Income for October went from a revised down 0.4% to 0.2%.
- Personal Spending for October went from 0.7% to 0.2%.
- San Francisco Fed official Mary Daly said she is not thinking about rate cuts any time soon. More hikes might be needed in inflation asks for it.
- Additional comments from Fed’s John Williams from teh New York Fed, saying that keeping rates restrictive is the best plan going forward for some time.
- The Chicago Purchasing Managers Index jumped from 44 to 55.8, which is out of contraction and an upbeat surprise from the 45.4 estimate.
- Pending Home Sales index for October declined from 1% to -1.5% agains the previous month.
- Right at the end of this Thursday, the US Treasury is heading to markets to allocate a 4-week bill.
- Equities are on track to print one of the best performing November in a long time. Euroepan equities are comfortable in the green, with US equities near session highs.
- The CME Group’s FedWatch Tool shows that markets are pricing in a 95.8% chance that the Federal Reserve will keep interest rates unchanged at its meeting in December.
- The benchmark 10-year US Treasury Note trades at 4.32%, and is finding a floor after the earlier decline this week.
US Dollar Index technical analysis: DXY can still close in the green for this week
The US Dollar has been stretched long and far enough in its devaluation – like an elastic band. Earlier this week the Relative Strength Index (RSI) was indicating that the elastic band was overstretched to the downside after entering oversold, and some unwinding was granted. The unwinding is starting to take place and could still put this weekly performance of the US Dollar Index (DXY) in the green if the current trend continues into Friday’s US close.
The DXY is making its way up towards the 200-day Simple Moving Average (SMA), which is near 103.59. The DXY could still make it back up there, should US traders come back in the market and start buying the current dip. A two-tiered pattern of a daily close lower followed by an opening higher would quickly see the DXY back above 104.28, with the 200-day and 100-day SMA turned over to support levels.
To the downside, historic levels from August are coming into play, when the Greenback summer rally took place. The lows of June make sense to look for some support, near 101.92, just below 102. Should more events take place that initiate further declines in US rates, expect to see a near full unwind of the 2023 summer rally, heading to 100.82, followed by 100.00 and 99.41.
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.
USD/ARS: Another large Peso devaluation to materialize before the end of this year – Wells Fargo
357919 November 30, 2023 23:33 FXStreet Market News
United States EIA Natural Gas Storage Change registered at 10B above expectations (-8B) in November 24
357918 November 30, 2023 23:33 FXStreet Market News
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FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
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US Pending Home Sales decline 1.5% in October
357916 November 30, 2023 23:17 FXStreet Market News
- Pending Home Sales in the US declined less than expected in October.
- US Dollar Index stays in positive territory around 103.40.
Pending Home Sales in the US rose 1.1% in October, the National Association of Realtors reported on Thursday. This reading followed a 1% increase recorded in September (revised from 1.1%) and came in better than the market expectation for a decrease of 2%. On a yearly basis, Pending Home Sales fell 8.5%.
Market reaction
The US Dollar stays on positive ground, supported by previous economic reports from the US that included consumer inflation and Jobless Claims. The US Dollar Index is up 0.45%, at 103.5.
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Colombia National Jobless Rate came in at 9.2%, above forecasts (9%) in October
357915 November 30, 2023 23:09 FXStreet Market News
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
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