The Mexican Peso (MXN) depreciated against the US Dollar (USD) on Tuesday, with USD/MXN approaching 16.90. This marks the fourth consecutive session of gains for the USD as market participants keenly await critical data releases and the forthcoming policy decision from Banco de México (Banxico), Mexico’s central bank.
Scrutiny on Mexican Spending and Banxico Policy
The market is currently waiting for the release of Mexico’s Private Spending data today (Tuesday) and Retail Sales figures tomorrow (Wednesday). These data points will provide insights into consumer spending patterns and the overall state of the Mexican economy. Furthermore, all attention is directed towards Banxico’s monetary policy meeting scheduled for Friday. The market predicts a small decrease in the interest rate by 25 basis points.
Central Bank Grapples with Interest Rate Decision
Banxico’s recent quarterly report acknowledged progress in curbing inflation. However, the report also underscored the importance of exercising caution regarding interest rate cuts. Recent pronouncements from members of the Governing Council suggest a potential internal division within the bank. Governor Victoria Rodriguez Ceja and some colleagues appear to favor a dovish approach, advocating for a rate cut, while others like Jonathan Heath advocate for maintaining current rates due to lingering inflation concerns.
Economic Slowdown vs. Industrial Growth: A Delicate Balancing Act
A potential economic slowdown in Mexico constitutes a major factor impacting the rate-cut decision. Banxico has recently revised its economic growth projections downward. However, this could be counterbalanced by Mexico’s robust Industrial Production, which witnessed a significant year-on-year surge, surpassing December’s stagnant figures. This positive industrial data could bolster the arguments for holding rates steady.
Strong USD Buoyed by Treasury Yields
Meanwhile, the USD gained traction, approaching 103.90, supported by rising US Treasury yields. Yields on 2-year and 10-year US bonds currently stand at 4.73% and 4.32%, respectively. Investors remain focused on the upcoming Federal Reserve (Fed) meeting on Wednesday, where the Fed is widely expected to maintain its current elevated interest rates in response to ongoing inflationary pressures in the US economy.
As the market awaits crucial data and the Banxico policy decision, the Mexican Peso is facing headwinds. The central bank is most likely grappling with the need to control inflation amidst concerns about an economic slowdown. Additionally, the situation for the MXN is further complicated by the rising US interest rates and a strengthening USD.
USD/MXN Long (Buy)
Enter At: 16.96150
T.P_1: 17.01432
T.P_2: 17.15427
T.P_3: 17.27579
T.P_4: 17.44043
T.P_5: 17.63742
T.P_6: 17.76555
T.P_7: 17.92112
T.P_8: 18.10993
T.P_9: 18.28712
T.P_10: 18.46188
S.L: 15.28250
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