Mexican Peso falters against the US Dollar as traders await Mexico’s employment figures
- Mexican Peso continues to slump as USD/MXN buyers target 18.40 with the US Dollar edging up.
- Mexico's Deputy Finance Minister, Gabriel Yorio, is optimistic about the country's GDP in 2023.
- USD/MXN is underpinned by a risk-off mood and elevated US bond yields.
- Geopolitical tensions escalate as Israeli Prime Minister Benjamin Netanyahu prepares for a ground invasion in Gaza.
Mexican Peso (MXN) extends its losing streak against the US Dollar (USD) to two straight days, driving more than 0.30%, as the USD/MXN has risen to a three-day high of 18.39 after bottoming at around 18.23 during Wednesday’s European session. At the time of writing, the exotic pair trades at 18.31.
Risk aversion remains the main driver of price action, as Israeli Prime Minister Benjamin Netanyahu stated that preparations for a ground invasion are underway, though he did not provide specific details regarding the operation. Netanyahu advised civilians in Gaza to move to the south and mentioned that the timing of the invasion would be determined by consensus.
In the meantime, Wall Street is set to finish Wednesday’s session with losses as US companies report their third-quarter earnings. The latest data reported in the United States sent Treasury bond yields rising, with the US 10-year benchmark note rate rising to 4.94%, up twelve basis points.
Consequently, the US Dollar Index (DXY), a gauge of the Greenback value against a basket of peers, rose to a daily high of 106.52, underpinning the USD/MXN to higher levels amid the lack of data in Mexico’s economic calendar.
Mexico’s Deputy Finance Minister Gabriel Yorio said the Gross Domestic Product (GDP) could reach 3.5% or more 2023 on Wednesday at the Mexican Senate. He added that a stronger US Dollar was not harming the country’s export competitiveness.
Daily Digest Market Movers: Mexican Peso reached a weekly low against the USD, as USD/MXN hit 18.39
- New Home Sales in the US rose by 12.3% MoM in September at the fastest pace since August 2022.
- US New Home Sales for September came at 0.759M vs. August’s 0.676M.
- On Tuesday, Mexico's National Statistics Agency INEGI reported annual headline inflation hit 4.27%, down from 4.45% at the end of September, below forecasts of 4.38%.
- Mexico’s core inflation rate YoY was 5.54%, beneath forecasts of 5.6%.
- US S&P Global Manufacturing PMI for October jumped to 50, exceeding forecasts of 49.5, while the Services PMI exceeded the contractionary consensus of 49.9, reaching 50.9.
- US S&P Global Composite PMI was 51, above the prior 50.2.
- The Bank of Mexico (Banxico) held rates at 11.25% in September and revised its inflation projections from 3.50% to 3.87% for 2024, above the central bank’s 3.00% target (plus or minus 1%).
- On Thursday, focus will turn to Mexico's Jobless Rate and US Q3 preliminary GDP figures.
Technical Analysis: Mexican Peso remains weak as USD/MXN buyers reclaim 18.30
The USD/MXN upward bias remains intact, and after forming a ‘bullish harami’ candlestick chart pattern, the pair rallied toward 18.39 before retreating to current levels above the October 24 close of 18.25. A breach of Wednesday’s daily high could pave the way for testing last week’s high at 18.46 before challenging 18.48, October’s high. Once those levels are cleared, the 18.50 figure would be up for grabs. Conversely, the USD/MXN must drop below the 18.00 psychological figure for sellers to reclaim the 200-day Simple Moving Average (SMA) at 17.73.
Banxico FAQs
What is the Bank of Mexico?
The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican Peso (MXN), and to set the monetary policy. To this end, its main objective is to maintain low and stable inflation within target levels – at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%.
How does the Bank of Mexico’s monetary policy influence the Mexican Peso?
The main tool of the Banxico to guide monetary policy is by setting interest rates. When inflation is above target, the bank will attempt to tame it by raising rates, making it more expensive for households and businesses to borrow money and thus cooling the 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. The rate differential with the USD, or how the Banxico is expected to set interest rates compared with the US Federal Reserve (Fed), is a key factor.
How often does the Bank of Mexico meet during the year?
Banxico meets eight times a year, and its monetary policy is greatly influenced by decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee usually gathers a week after the Fed. In doing so, Banxico reacts and sometimes anticipates monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico did it first in an attempt to diminish the chances of a substantial depreciation of the Mexican Peso (MXN) and to prevent capital outflows that could destabilize the country.