Mexican Peso drops amid strong Dollar, fueled by ongoing inflation signs and upbeat consumer sentiment.

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• Mexican Peso drops amid strong Dollar, fueled by ongoing inflation signs and upbeat consumer sentiment.
• Anticipation for Mexico’s Retail Sales, Q4 GDP and mid-February inflation data could influence Banxico’s policy direction.
• US PPI surge in January and positive consumer sentiment sponsor USD/MXN upside.

The Mexican Peso (MXN) depreciated against the US Dollar (USD) on Friday after data released in the United States (US) indicated that inflation is still high. A University of Michigan (UoM) poll suggests Americans see an improvement in economic conditions, while inflation expectations loom at around 2.9% and 3%. Therefore, some US Dollar strength pushed the USD/MXN pair up to trade at 17.06, gaining 0.14%.

Mexico’s economic docket will gather pace until next week, with the release of Retail Sales and the final Gross Domestic Product (GDP) figures for the last quarter of 2023. The February inflation report will be greatly scrutinized by the Bank of Mexico (Banxico), which is eyeing the beginning of its easing cycle.

In the meantime, USD/MXN traders gathered cues on the release of January’s Producer Price Index (PPI) from the US, which exceeded estimates and previous readings, while Consumer Sentiment continued to improve.

As I wrote in a previous article, “the USD/MXN consolidated in the 17.05-17.10 area during the last couple of days, holding near the 50-day Simple Moving Average (SMA) at 17.09.” However, the pair has tilted toward the bottom of the range, with sellers aiming to push spot prices below the 17.05 figure. Once that level is cleared, there would be nothing on the way to challenge the psychological 17.00 figure before diving toward last year’s low of 16.62.

Conversely, if buyers reclaim the 50-DMA, that could sponsor a leg up toward the current week’s high at 17.20-17.22. If those levels are taken, the USD/MXN could rally to the 200-day SMA at 17.29 before aiming toward the 100-day SMA at 17.39.

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