Mexican Peso strengthens amid comments from Banxico’s Rodriguez Ceja

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  • Mexican Peso extends gains for a third session, buoyed by central banker’s remarks.
  • Banxico Governor’s comments on inflation and easing hint at policy shifts as MXN gathers traction.
  • NY Fed’s Consumer Inflation Expectations for one year in January remained steady.

The Mexican Peso moderately gains ground against the US Dollar for the third straight trading session on Monday as Bank of Mexico (Banxico) Governor Victoria Rodriguez Ceja crossed the wires. Although Federal Reserve (Fed) officials laid the ground to ease policy in 2024, they pushed back against rate cuts as early as March. The USD/MXN trades at 17.05, down 0.20%, with sellers eyeing the 17.00 figure.

Mexico’s economic docket featured a speech by Banxico’s Governor Rodriguez, who spoke about inflation and the likelihood of easing monetary policy. Across the border, the calendar featured the New York Federal Reserve’s one-year Consumer Inflation Expectations registering at 3%, unchanged compared with December.

Daily digest market movers: Mexican Peso is firm ahead of US inflation report

  • In an interview with El Financiero, Banxico’s Governor, Victoria Rodriguez Ceja, said that inflation is expected to return to its downward trajectory and continue the disinflationary process. She added that despite increasing in the last three months, the Mexican central bank sticks to its vision that inflation will hit its 3% goal in 2025.
  • Rodriguez Ceja added that despite lowering interest rates during the year, the bank remains focused on inflation. She added, “The inflationary episode has been evolving, and the situation we find ourselves in now is very different from the one we experience in 2022, even in the first months of 2023.”
  • Rodriguez Ceja said the bank would make its decision based on various factors and data, including Fed’s decisions.
  • Mexico’s central bank revised their inflation expectations to the upside for Q1 to Q3 of 2024, and they expected to converge toward 3.5% in Q4, based on the latest monetary policy statement.
  • Last Thursday, INEGI revealed that in January, Mexico´s Consumer Price Index (CPI) rose by 4.88% YoY, while underlying inflation moderated to 4.76%.
  • Atlanta Fed President Raphael Bostic said the Fed must be resolute and added that he’s “laser-focused” on inflation. At the same time, Dallas Fed President Lorie Logan noted that there’s no urgency on cutting rates.
  • The US Bureau of Labor Statistics (BLS) will release inflation data on February 13. The Consumer Price Index (CPI) for January is foreseen dipping from 3.4% to 2.9% YoY. The Core CPI is expected to dip from 3.9% to 3.7% on an annual basis.

Technical analysis: Mexican Peso stays firm as USD/MXN remains below 17.10

The USD/MXN is neutral to downwardly tilted with sellers eyeing a break below 17.00. Relative Strength Index (RSI) studies suggest that bears are in charge, but the slope is turning somewhat flat. If sellers push prices below 17.05, that could open the door to test the psychological 17.00 figure. A breach of the latter could pave the way to challenge 2023 low of 16.62.

On the other hand, if buyers reclaim the 50-day SMA at 17.11, that can pave the way to test the 200-day SMA at 17.29. Upside risks emerge once that barrier is cleared with the following supply zone coming at 17.40, the 100-day SMA.

USD/MXN Price Action – Daily Chart

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.