Mexican Peso advances due to investors expecting substantial US rate cuts, a headwind for the US Dollar.

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• Mexican Peso advances due to investors expecting substantial US rate cuts, a headwind for the US Dollar.
• Mexico’s higher-than-expected inflation and industrial production slump puts Banxico at a crossroads.
• USD/MXN retreats below 16.85 with traders eyeing a new multi-year low below 16.62.

The Mexican Peso (MXN) climbed during the North American session against the US Dollar (USD) due to investors increasing bets that the US Federal Reserve (Fed) would aggressively ease policy, pricing in more than 170 basis points of cuts. Therefore, the Greenback remains pressured, a headwind for the USD/MXN, which has dropped 0.31% to trade at 17.85 after hitting a three-day low of 16.82.

Mexico’s economic docket remains scarce, though the current week revealed that inflation was higher than expected in December, which could deter the Bank of Mexico (Banxico) from easing monetary policy in the first quarter. Nevertheless, higher interest rates are beginning to impact the country’s industry as Industrial Production plunged, hurting growth prospects for 2024.

In regard to that, Mexican President Andres Manual Lopez Obrador entered the arena of economic projections, projecting that the economy would grow by 3.5%, exceeding the World Bank forecast of 2.6%.

Across the border, the US Department of Labor announced that prices paid by producers slipped in December, which triggered a repricing for additional rate cuts by the US central bank, consequently weakening the Greenback.

The USD/MXN pair resumed its uptrend after a bullish impulsive correction that lifted the spot price toward its weekly high of 17.07 before reversing course below the 17.00 figure. As the downtrend advances, the next key support levels to be tested would be August 28’s 16.69, followed by the 2023 low of 16.62.

Further upside will only be seen if buyers step in, pushing the USD/MXN exchange rate above 17.00. The first resistance would be 17.20, followed by the 50-day Simple Moving Average (SMA) at 17.20, ahead of challenging the confluence of the 100 and 200-day SMAs at around 17.39/40.

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