Mexican Peso stays firm as Banxico lower rates 25 basis points

• Mexican Peso is virtually unchanged after hitting a daily high of 19.46.
• Banxico cuts rates by 25 bps in a 4-1 vote, with inflation expected to ease by 2025.
• USD/MXN briefly dipped to 19.55 but stabilized above 19.60 after Banxico’s rate cut decision.

The Mexican Peso steadied against the Greenback on Thursday after the Bank of Mexico (Banxico) decided to lower rates by 25 basis points (bps) in accordance with estimates by market participants. Initially, the USD/MXN whipsawed but stabilized above the 19.60 area, virtually unchanged.

Banxico decided by majority to lower rates to 10.50% in a 4-1 vote split, while Deputy Governor Jonathan Heath voted to hold rates unchanged.

In the monetary policy statement, Banxico recognized that economic activity is weakening, weighing on the labor market, which has cooled down. The central bank revised its inflation expectations for headline and core figures upward in 2024 but still estimates inflation would hit the target by the end of 2025.

Despite revising inflation, the bank added, “the nature of the shocks that have affected the non-core component and the projection that their effects on headline inflation will continue dissipating over the next quarters,” adding that “although the outlook for inflation still calls for a restrictive monetary policy stance, its evolution implies that it is adequate to reduce the level of monetary restriction.”

After the decision, the USD/MXN dipped toward 19.55 before aiming above the 19.60 area and stabilized at around the current exchange rate.

Across the south of the border, the US schedule revealed final Gross Domestic Product (GDP) figures for Q2 2024, which were better than expected, while jobs data showed that the number of Americans filing for unemployment benefits was lower than anticipated and also below the previous number.

Meanwhile, Fed speakers had crossed the newswires but failed to comment on monetary policy.

Daily digest market movers: Mexican Peso stays firm amid lack of catalysts

• Mexican political turmoil eases as market participants prepare for the change of president on October 1, a bank holiday in Mexico. President-Elect Claudia Sheinbaum’s speech will be watched for hints about her economic plan.
• USD/MXN whipsawed and erased earlier losses, boosted by the buck’s recovery.
• Banxico is expected to lower borrowing costs by 175 bps toward the end of 2025, according to the swaps markets.
• US Dollar Index (DXY), which tracks the buck’s performance against a basket of six peers, is virtually unchanged at 100.90.
• Market participants have fully priced in at least a 25 bps rate cut by the Fed. However, the odds for 50 bps of easing are 51.3%, lower than the 60% chance a day ago, according to the CME FedWatch Tool.

USD/MXN technical analysis: Mexican Peso hovers at around 19.60

The uptrend remains in place, with USD/MXN eyeing further upside, which could happen if they push the spot price above the current weekly high of 19.68, opening the door to challenge the September 12 peak at 19.84 ahead of the psychological 20.00 figure. Momentum favors further upside as the Relative Strength Index (RSI) is bullish.

Failure to conquer 19.68 could pave the way for lower prices. The first support would be the 19.50 mark, followed by the September 24 swing low of 19.23, before the pair moves toward the September 18 low of 19.06. Once those levels are surpassed, the 19.00 figure emerges as the next line of defense.

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