Mexican Peso rally fizzles, slides against US Dollar on dovish Fed remarks

• Mexican Peso exchange rate with the US Dollar reached a two-week high as the USD/MXN hit 18.39.
• Mexico’s GDP grew 3% YoY in September, preliminary INEGI report shows.
• The Mexican Congress approved the 2024 budget, projecting the most significant deficit since 1988.
• Fed Chair Jerome Powell's dovish remarks hint at a cautious approach to monetary policy.

Mexican Peso (MXN) finished Thursday’s session with losses of 0.41% against the US Dollar (USD), even though dovish remarks by the US Federal Reserve (fed) Chair Jerome Powell triggered some US Dollar weakness. However, risk-aversion and US Treasury bond yields climbing to multi-year highs weighed on the emerging market currency. After reaching a two-week high at 18.3, the USD/MXN ended the session at 18.32.

Federal Reserve Chair Jerome Powell has emphasized the need for careful consideration in setting monetary policy, particularly in the context of above-trend growth. Powell acknowledged that the current policy is restrictive and recognized that inflation remains elevated. His statements align with a recent shift among some Federal Reserve officials toward a more neutral stance, even though most anticipate rates will remain unchanged for an extended period.

A poll by the National Statistic Agency, known as INEGI, revealed the “Indicator Oportuno de la Actividad Economica (IOAE),” which is a preliminary reading of the Global Indicator of Economic Activity (IGAE), a monthly report of GDP. According to the poll, the Mexican economy grew at a 3% rate in September, while the Mexican Congress approved the 2024 budget proposed by President Andres Manuel Lopez Obrador, which contemplates the most significant deficit since 1988. Apart from that, Mexico’s economic docket remains light.

Across the border, the labor market in the United States (US) remains hot, as jobless claims came below estimates, while the housing market deteriorated further as Existing Home Sales sank.

Daily Digest Market Movers: Mexican Peso sways with market sentiment; USD/MXN climbs above 18.30

• IOAE portrays the Mexican economy growing at a 3.12% YoY pace.
• US Initial Jobless Claims for the week ending October 14 rose by 198K, below estimates and previous week data, each at 212K and 211K, respectively.
• US Existing Home Sales rose by 3.96M in September, below August’s 4.04M, a -2% contraction.
• US Building Permits plummeted -4.4% in September, compared to last month’s 6.8% increase.
• Housing Starts for the same period previously mentioned rose by 7%, exceeding August’s -12.5% plunge.
• Mexico’s GDP in 2023 is expected to hit 3.2%, according to the World Bank and the International Monetary Fund.
• Mexico's Industrial Production (IP) for August improved by 5.2% YoY, exceeding forecasts of 4.6% and July’s 4.8% increase.
• Monthly, IP in Mexico rose 0.3%, as expected, but trailed the previous 0.5% reading.
• Mexico’s Consumer Price Index (CPI) grew by 4.45% YoY in September, slightly below the 4.47% estimated.
• The core CPI inflation in Mexico stood at a stickier 5.76% YoY, as widely estimated, but has broken below the 6% threshold.
• The Bank of Mexico (Banxico) held rates at 11.25% in September and revised its inflation projections from 3.5% to 3.87% for 2024, above the central bank’s 3% target (plus or minus 1%).

Technical Analysis: Mexican Peso deteriorates, as USD/MXN buyers’ eye 18.50

USD/MXN buyers are preparing to challenge the October 6 cycle high at 18.48. A breach of the latter would expose the psychological 18.50 level, followed by the March 24 high at 18.79 before rallying to 19.00. On the downside, the uptrend would be at risk if the USD/MXN pair falls below the 20-day Simple Moving Average (SMA) at 17.86 and the October 12 low of 17.75.