The Mexican Peso continued its downward spiral against the US Dollar on Monday, marking its fifth consecutive session of losses. The USD/MXN pair climbed to 20.80, up by 0.43%, as market participants reacted to a stronger-than-expected US employment report that fueled concerns the Federal Reserve (Fed) may hold off on cutting interest rates.
The risk-off sentiment in the market intensified following last week’s December Nonfarm Payrolls (NFP) report, which showed a significant increase in job growth. As a result, the US Dollar strengthened, with traders growing less confident in the prospect of imminent rate cuts from the Fed. Additionally, US Treasury yields remained elevated, with the 10-year T-note reaching 4.801%, its highest level since November 2023.
Mexico’s Economic Outlook
Mexico’s economic data remains sparse this week, though industrial production has shown improvements both monthly and annually. However, concerns about the nation’s economic health persist. Former Deputy Finance Minister Alejandro Werner warned that Mexico could face a recession in 2025 and may lose its investment-grade status before 2027.
The upcoming economic reports from Mexico include Gross Fixed Investment and Retail Sales data. On the US side, critical data releases will cover producer and consumer inflation figures, along with Retail Sales and jobless claims for the week ending January 11.
Market Developments and Central Bank Policy
The Mexican Peso came under pressure following December’s NFP data, which showed the US economy added more than 256,000 jobs—significantly higher than the 160,000 expected. The Unemployment Rate fell to 4.1%, while Average Hourly Earnings growth slowed below 4%. Despite market expectations for a rate cut by the Fed in 2025, Wednesday’s US inflation data will be pivotal. A higher-than-expected inflation reading could reinforce the view that the Fed will keep rates elevated through 2025.
In Mexico, Banco de Mexico’s (Banxico) December meeting minutes indicated a continued decline in inflation, suggesting that the central bank could maintain its easing cycle. Banxico noted that services inflation had decreased, and officials expect the inflation target of 3% to be reached by Q3 2026.
USD/MXN Technical Outlook
The uptrend in USD/MXN remains intact, with the US Dollar gaining ground against the Peso. If the pair continues to rise, it could test the 20.90 level, the year-to-date high, followed by the March 8, 2022 peak of 21.46. A break above 21.50 could open the door to the psychological 22.00 level.
On the other hand, a drop below 20.50 could expose the 50-day Simple Moving Average (SMA) at 20.30, with a further decline bringing the 20.00 level and the 100-day SMA at 19.96 into play.
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