The Mexican Peso (MXN) strengthened by over 0.64% against the US Dollar (USD) on Tuesday, buoyed by relief over US tariffs and a mixed set of economic data. As of writing, USD/MXN stood at 20.09.
The positive sentiment came after Bloomberg reported that US President Donald Trump’s April 2 tariff announcement would focus on specific countries rather than applying duties universally, lifting investor confidence and pushing US equities higher. Additionally, Mexico’s latest economic data revealed a contraction in the economy and a continued disinflationary trend. The Instituto Nacional de Estadística y Geografía (INEGI) reported that the Consumer Price Index (CPI) for the first half of March came in below expectations on both a monthly and annual basis. The core CPI, excluding food and energy, remained within the Banco de México’s (Banxico) target range of 3% ± 1%, signaling stable inflation pressures.
Despite economic contraction in January, Banxico is expected to implement a 50 basis point rate cut on Thursday. The market eagerly awaits this decision, with most analysts predicting a reduction in rates amid the evolving disinflation process and a weakening economy.
Meanwhile, in the US, S&P Global’s Flash PMIs showed a mixed outlook, with manufacturing activity contracting, while the services sector improved compared to February.
Mexico’s economic docket this week will also include Trade Balance data, while the US focuses on the Federal Reserve’s preferred inflation gauge, the core Personal Consumption Expenditures (PCE) Price Index.
Market Movers: Banxico Rate Cut and Economic Data Impact USD/MXN
According to the Citi Mexico Expectations Survey, most analysts forecast Banxico’s interest rates will end 2025 at 8%, slightly lower than the previous estimate of 8.25%. USD/MXN is expected to close at 20.98, down from 21.00 in the last survey. Inflation expectations remain anchored in the high 3% range, and GDP growth is now anticipated to be 0.6%, down from the previous forecast of 0.8%.
INEGI reported that mid-March inflation rose by 0.14% month-over-month, slightly lower than February’s 0.15%. On an annual basis, inflation rose 3.67%, down from the previous 3.74% and below the 3.75% forecast. Core inflation also showed signs of easing, rising 3.56% year-over-year, down from 3.63%.
In January, Mexico’s IGAI Economic Activity Index contracted by 0.1% year-over-year, showing improvement from the 0.4% contraction seen in December.
On the US side, S&P Global reported a sharp deterioration in manufacturing activity, with the S&P Global Manufacturing PMI falling to 49.8 in March from 52.7 in February, while the S&P Services PMI rose sharply to 54.3, exceeding market expectations.
With traders pricing in a potential 64.5 basis points (bps) rate cut from the Federal Reserve for the year, the USD/MXN remains under pressure as it eyes the upcoming Banxico decision.
Technical Outlook: Mexican Peso Gains as USD/MXN Dips Below 20.15
USD/MXN continues to trade within a trendless range, but at present, the Mexican Peso is gaining ground. Sellers are targeting the 200-day Simple Moving Average (SMA) at 19.69, with the first hurdle being the psychological 20.00 level. On the upside, if buyers push USD/MXN above the 100 and 50-day SMAs near 20.35/39, the next resistance will be at 20.50, followed by a potential move towards 20.99.
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