The Mexican Peso (MXN) is making a notable recovery, appreciating by over 0.23% against the US Dollar (USD), with the USD/MXN trading around 20.39 after hitting a daily high of 20.46. This positive move comes despite weaker-than-expected retail sales data for December, which showed a slight dip compared to November but still exceeded private economists’ pessimistic forecasts.
Key Economic Developments:
Retail Sales: Mexico’s Retail Sales showed a modest increase of 0.1% month-on-month (MoM) in December, surpassing expectations for a -0.4% contraction. On a yearly basis, retail sales improved from a -1.9% YoY decline to a more moderate -0.2%.
Banxico’s Dovish Outlook: The latest Meeting Minutes from Mexico’s central bank (Banco de México, Banxico) reaffirmed a dovish stance, hinting at more rate cuts. Banxico revised its 2025 growth forecast down to 0.6%, a significant drop from the 1.2% previously forecasted. The central bank also projected weaker consumption and private spending, indicating an uncertain economic environment.
Monetary Policy Divergence: Banxico’s dovish stance contrasts with the Fed‘s more cautious approach, which may continue to pressure the USD/MXN pair. The market is pricing in further rate cuts by Banxico, while the Fed is expected to keep rates steady, thus favoring the Mexican Peso in the near term.
Trade and Tensions: Mexico’s President Claudia Sheinbaum mentioned that Mexico’s Secretary of Economy, Marcelo Ebrard, would meet with the US Commerce Secretary to discuss tariffs, keeping trade tensions between the two nations in focus. Although a 30-day pause has been agreed upon, concerns over potential tensions later in February could weigh on market sentiment.
USD/MXN Technical Outlook:
The USD/MXN pair is currently consolidating below the 50-day Simple Moving Average (SMA), signaling that bullish momentum is restrained. A potential decline below the 50-day SMA could lead to further weakness, targeting support at the 100-day SMA near 20.22, with the psychological 20.00 level likely to come into play next. If this level is breached, the next support lies at the October 18, 2024 low of 19.64, followed by the 200-day SMA at 19.37.
On the flip side, should the USD/MXN break above the 50-day SMA, it could see further gains, targeting the 20.50 resistance level.
Market Sentiment and Outlook: Despite Mexico’s weaker economic outlook, the MXN remains relatively resilient due to the dovish stance from Banxico and the broader weakness in the US Dollar. The divergence in monetary policy between the Fed and Banxico, along with external factors like trade disputes, will likely continue to drive the USD/MXN pair in the short term. Traders should closely monitor developments in US-Mexico trade relations and any further updates from Banxico.
Related Topics:
