Mexican Peso Retreats After Gaining 1.50% Last Week, Banxico Justifies Rate Cut Amid Split Decision
The Mexican Peso is facing pressure after a strong performance last week, with Consumer Confidence in Mexico taking a hit. Banxico Governor Rodriguez defends the recent rate cut, citing temporary inflation effects. The focus now shifts to key US economic data releases, boosting the USD.
Consumer Confidence in Mexico dropped in July, signaling a potential economic slowdown. Banxico’s decision to cut rates by 25 bps was supported by elements indicating transitory inflation effects. Despite headline inflation hitting 5.57%, core prices continued to drop, reaching 4.05% in July.
Traders are now awaiting US inflation and retail sales data, along with the University of Michigan Consumer Sentiment report. The CME FedWatch Tool shows reduced odds of a 50-basis-point rate cut by the Fed in September.
Analysis: Mexican Peso Under Pressure Following Banxico’s Decision
- Banxico expects CPI to rise to 5.2% in Q3 and drop to 4.4% in Q4, aiming for the 3% inflation target by Q4 2025.
- Inflation forecasts suggest a short-term increase in headline inflation, while core inflation is projected to decrease below 4% by Q4 2024.
- Inflation risks remain high, with growth prospects leaning towards the downside.
- The USD/MXN uptrend is back on track, surpassing 18.90 and eyeing the psychological level of 19.00.
The RSI indicates buyer momentum, with resistance levels at 19.50, 20.00, and 20.22. Support levels are at 18.76 and 18.59, with a break below potentially reaching 18.50.