The Mexican Peso and Its Recent Decline
Recent events have caused the Mexican Peso to fall to a six-week low against the US Dollar. The primary drivers behind this decline include:
- Former President Trump’s Lead in US Election Polls: The increasing likelihood of former President Donald Trump leading in the polls has caused concerns among investors, leading to a risk-off sentiment that has impacted the Mexican Peso.
- Fears of a Constitutional Crisis in Mexico: President Sheinbaum’s defiance of a court ruling to remove a judicial reform decree has raised fears of a constitutional crisis in Mexico, further contributing to the Peso’s decline.
- Focus on Economic Data: Investors are now shifting their focus to upcoming economic data releases from both Mexico and the US, with Retail Sales and inflation figures taking the spotlight.
Current Market Dynamics and Outlook
As of the latest data, the USD/MXN pair is trading at 20.03 after bouncing off a daily low of 19.82. Here are some key points to consider:
- US Election Influence: Traders are closely monitoring the US election, with recent polls indicating a tightening race and a potential victory for former President Trump. His proposed 200% tariff on Mexican cars has added further pressure on the Peso.
- Legal Uncertainties in Mexico: The ongoing dispute over a judicial reform decree in Mexico has raised concerns about a possible constitutional crisis, impacting investor sentiment.
- Economic Data Releases: With a lack of significant economic events in both countries, investors are closely watching China’s stimulus measures and comments from the US Fed for market direction.
Key Data Points and Forecasts
Looking ahead, here are some crucial data points and forecasts to keep an eye on:
- Mexico’s Economic Activity: Expected to slow from 3.8% to 0.9%.
- October Mid-Month Inflation: Projected to drop from 3.95% to 3.83%, with underlying inflation expected to decrease as well.
- IMF Projections: The IMF forecasts a lower economic growth rate for Mexico in the coming years, with concerns about the recent judicial reform impacting the economy.
- US Jobless Claims and PMI Data: Initial Jobless Claims are expected to rise, while business activity in the manufacturing sector could see a slight increase.
Technical Outlook for USD/MXN Pair
From a technical perspective, the USD/MXN pair is showing an upward bias, with potential resistance levels and support zones to watch:
- Resistance Levels: If the pair clears the YTD high at 20.22, the next targets could be 20.50 and 21.00.
- Support Levels: On the downside, key support levels include 19.64, 19.61, and 19.10, before testing the 19.00 mark.
Banxico FAQs
For those interested in understanding the role of the Bank of Mexico (Banxico) in shaping monetary policy and its impact on the Mexican Peso, here are some frequently asked questions:
- Mission of Banxico: Banxico’s main objective is to preserve the value of the Mexican Peso and maintain low and stable inflation levels.
- Interest Rates and Monetary Policy: Banxico uses interest rates to guide monetary policy, with rate differentials compared to the US Federal Reserve playing a crucial role in currency movements.
- Decision-Making Process: Banxico meets regularly to make key policy decisions, often influenced by actions taken by the US Federal Reserve.