The Mexican Peso gained against the US Dollar on Thursday following a widely anticipated interest rate cut by the Banco de Mexico (Banxico). However, by the start of Friday’s Asian session, the USD/MXN was trading at 20.34, up by 0.22%.
Banxico’s decision to lower the main reference rate by 25 basis points to 10.00% aligns with market expectations. The central bank acknowledged that risks to economic growth are tilted to the downside, though the Mexican economy performed better than expected in the third quarter of 2024.
Inflationary pressures eased between November and December, with revised projections for 2024 pointing to a softer inflationary outlook. Banxico expects the Consumer Price Index (CPI) to converge to its 3% target by Q3 2026, while the inflation forecast for the end of 2024 stands at 4.6%, and core inflation is expected to end the year at 3.6%.
Despite the economic improvement, Banxico highlighted the uncertainty caused by potential US tariffs on Mexican imports. The central bank remains open to further rate cuts, noting that continued disinflation could lead to more significant reductions in future meetings, though it intends to maintain a restrictive stance.
Meanwhile, US economic data showed stronger-than-expected growth in Q3 2024, with GDP rising by 3.1%, surpassing forecasts of 2.8%. Initial jobless claims also fell to 220,000, signaling a robust labor market.
The Federal Reserve adopted a less dovish stance after its Wednesday meeting, cutting rates by 25 basis points, but signaling a more cautious approach to future rate reductions. Fed officials now expect 50 basis points of easing in 2025, as reflected in the central bank’s updated dot plot.
Looking ahead, the Mexican economic calendar remains light, while in the US, the release of the Core Personal Consumption Expenditures (PCE) Price Index and the University of Michigan Consumer Sentiment Index will be key events.
USD/MXN Technical Outlook: The USD/MXN uptrend has stalled, with the Mexican Peso showing strength. If the pair breaks below the 50-day Simple Moving Average (SMA) at 20.13, the next support level lies at the psychological 20.00 mark. A breach of this support could push the pair to test the 100-day SMA at 19.75. On the upside, resistance remains at 20.50 and 20.59, with further gains possibly reaching the year-to-date high of 20.82.
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