Mexican Peso strengthens for third day, bolstered by strong trade balance and weak US PCE figures.

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• Mexican Peso strengthens for third day, bolstered by strong trade balance and weak US PCE figures.
• Mexico’s sizable December trade surplus and robust job market underscore economic strength amid global uncertainty.
• US Fed’s core PCE index falling below 3% fuels May rate cut expectations, benefiting emerging currencies like MXN.

The Mexican Peso (MXN) stays on a mission and climbs for the third straight day versus the US Dollar (USD) after data from Mexico suggests the Trade Balance expanded more than expected, while inflation data in the United States (US) was softer. That has increased the odds of a rate cut by the US Federal Reserve (Fed), keeping the Greenback (USD) pressured as the interest rate differential would likely support the emerging market currency. The USD/MXN trades at 17.17, down 0.15% on the day.

The National Statistics Agency (INEGI) in Mexico revealed the country posted a surplus in December. That data and strong labor market data revealed on Thursday portray the economy’s strength bolstered by the prospects of nearshoring.

In the meantime, the Fed’s preferred gauge for inflation, the Personal Consumption Expenditures (PCE) Price Index, was unchanged, though the core annualized figure dipped below the 3% threshold, a sign that the restrictiveness of policy is driving prices down. That said, investors seem convinced that the Fed will cut rates in May by 25 basis points (bps), according to the CME FedWatch Tool.

The USD/MXN has accelerated to the downside after printing losses for three straight days, but it continues to exchange hands above strong support from the 50-day Simple Moving Average (SMA) at 17.13. A breach of the latter will expose the January 22 low, followed by the 17.00 psychological figure.

On the flip side, if buyers reclaim the next resistance level at the 200-day SMA at 17.34, that could open the door to challenge the 100-day SMA at 17.41. Further upside is seen above the psychological 17.50 figure, ahead of rallying to the May 23 high from last year at 17.99.

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