Mexican Peso up, USD/MXN down nearly 1% as unexpected high inflation in Mexico may hinder Banxico’s easing policy plans.

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• Mexican Peso up, USD/MXN down nearly 1% as unexpected high inflation in Mexico may hinder Banxico’s easing policy plans.
• INEGI reveals mixed Mexican economy: Rising inflation, shrinking monthly activity, yet core prices stabilizing.
• US business activity strengthens, marked by a surge in the manufacturing index and easing inflation pressure, could underpin USD/MXN.

The Mexican Peso regains its momentum on Wednesday, rising against the US Dollar after economic data from Mexico suggests inflation is reaccelerating. This could deter the Bank of Mexico (Banxico) from easing policy rates. That along with a drop in US Treasury yields weighing on the Greenback keeps the USD/MXN trading with losses of almost 1%, at 17.14, testing a key support level ahead of the 17.00 figure.

The National Statistics Agency (INEGI) in Mexico revealed that inflation in the first 15 days of January was above forecasts and exceeded December’s print. Meanwhile, core prices continued to ease, signaling a continuation of the disinflation process. At the same time INEGI revealed that Mexico’s economy shrank in November, more than in October on a monthly reading, while expanding below forecasts on an annual basis.

Across the border, S&P Global announced that business activity picked up sharply in the US The manufacturing index surprisingly returned to expansionary territory and kept inflation in check as prices cooled down.

The USD/MXN erased Tuesday’s gains on Mexico’s economic data releases. Therefore, the exotic pair failed to breach the 200-day Simple Moving Average (SMA) at 17.36, extending its losses toward the 50-day SMA at 17.14. Next support is seen at 17.05, the January 22 low, followed by the 17.00 psychological figure.

On the other hand, if buyers lift the exchange rate past the 17.20 area, that could pave the way to retest the 200-DMA, followed by the 100-day SMA at 17.42. A breach of the latter will expose the psychological 17.50 mark, ahead of rallying to the May 23 high from last year at 17.99.

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