On Thursday, the Mexican Peso gained some ground as investors absorbed the latest inflation figures from the US, which indicate that more tightening might be necessary but also led to a dip in the US Dollar. The USD/MXN pair is trading at 18.41, reflecting a decrease of 0.44%.
US inflation spikes, consumers show resilience, and the US Dollar declines
The US inflation data released on Thursday was higher than anticipated. The Producer Price Index (PPI) for September increased by 6.3% year-on-year, surpassing the forecast of 5.3%, while the core PPI also rose from 4.8% to 5% YoY, exceeding projections.
In response, money markets lightly adjusted their expectations for a rate hike by the Federal Reserve in October. Despite both consumer and producer inflation rates being above forecasts, they suggest that inflationary pressures in the US are still on the rise.
According to Prime Terminal data, the chances of a rate hike in October have fallen to 26% from 40% the previous day, whereas December’s likelihood is around 92%.
Simultaneously, US Retail Sales for September dropped to 0.8% month-over-month from 1.3%, but this figure also exceeded the expected 0.3%, largely thanks to rising average spending at gas stations.
The labor market remains robust, with jobless claims for the week ending October 10 falling slightly below the 200K estimate, registering at 199K.
Consequently, the US Dollar Index (DXY), which assesses the dollar’s performance against six other currencies, has decreased by 0.51% and is hovering around the 102.00 level.
Cleveland Fed President Beth Hammack expressed a hawkish view, noting that businesses are experiencing notable pressures from rising input costs and mentioned that financial conditions don’t seem to be restrictive at this point.
Looking ahead, investors are keenly awaiting remarks from Fed Chair Kevin Warsh during the IMF’s annual meeting, which could provide insights ahead of this month’s Federal Reserve meeting.
Limited economic data from Mexico keeps the Greenback dominant
In the meantime, the scant economic data emerging from Mexico tends to keep investors focused on the dynamics of the US Dollar, geopolitics, and overall market sentiment.
On the geopolitical front, tensions between the Houthis and Saudi Arabia persist, and both the US and Iran claim control over the Strait of Hormuz. Notably, Israeli Prime Minister Netanyahu is said to have discussed with US Secretary of State Marco Rubio, indicating that military action could be considered if Iran fails to alter its course.
USD/MXN Price Forecast: A look at the technical perspective
Currently, the USD/MXN is trading at 18.4282. The pair remains comfortably above the latest simple moving average of 17.3967, maintaining a bullish tone following a recent breakout. It is also above a previous downward resistance trendline that was last tested near 18.1200, indicating that this area is now acting as support. The Relative Strength Index (RSI) sits at 70.1009, suggesting that while bullish momentum persists, it might be slowing down after the recent sharp gains.
On the downside, initial support is found around the former trend-line near 18.1200, followed by a cluster of simple moving averages at 17.3967, which helps define a medium-term floor. A more substantial pullback could lead to support at 16.8866, the latest significant level established. Without immediate technical restrictions overhead, future upward movement may depend more on momentum trends and potential profit-taking than on well-defined chart barriers.
Mexican Peso FAQs
The Mexican Peso (MXN) is the most actively traded currency in Latin America. Its value is largely influenced by the Mexican economy’s performance, the central bank’s policies, foreign investment levels, and remittances sent by Mexicans living overseas, especially in the US. Geopolitical factors also impact the MXN, such as the trend of nearshoring—where companies shift production closer to home—which positions Mexico as a key player in manufacturing on the continent. Additionally, fluctuations in oil prices can significantly affect the currency, given that Mexico is a major oil exporter.
Mexico’s central bank, known as Banxico, aims to keep inflation stable and low, targeting around 3%, which is the midpoint of a range between 2% and 4%. To achieve this, the bank sets interest rates accordingly. If inflation rises too high, Banxico typically responds by increasing rates to curb borrowing, which helps cool demand in the economy. Higher interest rates tend to bolster the value of the Mexican Peso (MXN), whereas lower rates might weaken it.
Understanding macroeconomic data releases is essential for gauging the health of the economy and can influence the value of the Mexican Peso (MXN). A robust economy—with strong growth, low unemployment, and high confidence—will generally benefit the MXN. This not only attracts foreign investment but may also prompt Banxico to raise interest rates, particularly if economic growth is coupled with rising inflation. Conversely, weak economic data is likely to lead to a depreciation of the MXN.
As an emerging-market currency, the Mexican Peso (MXN) often performs well during periods when investors feel optimistic and are willing to take on higher risk. However, in times of market uncertainty or turbulence, MXN typically weakens as investors retreat to safer assets.
