Mexican Peso drops, reflecting concerns over Mexico’s economic performance and potential Banxico rate cuts.

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• Mexican Peso drops, reflecting concerns over Mexico’s economic performance and potential Banxico rate cuts.
• Recent Mexican data shows inflation decline, GDP slowdown and significant drop in Retail Sales.
• Banxico minutes hint at possible easing in March with a shift toward a less hawkish monetary policy stance.

Mexican Peso loses steam for the second straight day against the US Dollar as market sentiment has shifted negatively. The Mexican currency is headed to end the week with losses after economic data witnessed inflation edging lower, the Gross Domestic Product (GDP) decelerating, and Retail Sales plummeting. At the time of writing, the USD/MXN exchanges hands at 17.14, up 0.20%.

The economic docket across the Bravo River is empty. Economic data revealed from Mexico showed the impact of higher interest rates set by the Bank of Mexico (Banxico). Although inflation dipped sharply in the first 15 days of February, the GDP for Q4 came in as expected at 2.5% YoY, exceeding forecasts but 0.8% lower compared to Q3 2023. Additionally, Retail Sales plunged, signaling that consumers reduced their spending.

In the meantime, Banxico’s latest minutes showed that the Governing Council could cut rates at the March 21 meeting as expressed by three of the five voting members. Two members added they can’t disregard maintaining rates at current levels. One of those members added he/she requires that underlying inflation shows a downward trajectory before beginning the easing cycle.

The language of the minutes was less “hawkish,” indicating a more flexible approach, according to analysts cited by El Economista. Analysts at Goldman Sachs commented that the Banxico Governing Council is tilting toward easing monetary policy unless exogenous shocks impact the USD/MXN exchange rate.

The USD/MXN has resumed its uptrend above the 50-day Simple Moving Average (SMA) following the release of last Thursday’s inflationary figures, while the sudden shift in Banxico’s rhetoric keeps the pair afloat above the 17.10 area.

Across the border, the Minutes of the US Federal Reserve (Fed) meeting showed that policymakers remain hesitant to cut rates amidst fears of a second round of inflation. Recently, the US Bureau of Labor Statistics (BLS) revealed that unemployment claims rose below estimates, while business activity, despite moderating, expanded.

The USD/MXN remains consolidated despite breaking above the 50-day Simple Moving Average (SMA) at 17.07. If buyers like to regain control, they must lift the exotic pair above 17.20, so they can threaten the 200-day SMA at 17.27. Once cleared, the 100-day SMA at 17.38 would be up next, ahead of the 17.50 figure.

On the other hand, if sellers step in and cap USD/MXN’s upside, they need to push prices below the 17.00 figure. Once cleared, the next support would be the current year-to-date (YTD) low of 16.78, followed by the 2023 low of 16.62.

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