The Mexican Peso depreciated against the US Dollar on Friday despite easing Mexican inflation, as mixed US jobs data and diverging monetary policy outlooks fueled USD strength. While Banxico lowered interest rates, the Fed signaled a cautious approach for 2025, creating a potential narrowing of the interest rate differential between the two countries.
The Mexican Peso (MXN) experienced a reversal of its initial upward trend on Friday, depreciating against the US Dollar ( USD ), despite a slight easing in US inflation. This depreciation followed the release of Mexican inflation data which confirmed the justification for Banco de Mexico ( Banxico )'s 50 basis points interest rate cut on Thursday.
In the United States, the latest Nonfarm Payrolls report revealed a mixed picture, with job creation falling short of expectations while the unemployment rate ticked down. This development provided a boost to the USD, pushing the USD/MXN pair to 20.60, a 0.86% increase.Mexico's Consumer Price Index (CPI) for January showed a 3.53% year-on-year increase, a decline from the previous month's 4.21% and below forecasts of 3.61%. Core CPI rose to 3.66% year-on-year, surpassing the previous month's 3.65% but remaining below the anticipated 3.70%. These inflationary trends, coupled with the last quarter's economic contraction of -0.6% quarter-on-quarter, were key factors influencing Banxico's decision to lower borrowing costs.While Banxico's 50 basis points rate cut was not unanimous, with Deputy Governor Jonathan Heath voting for a 25 basis points reduction, the central bank signaled its intention for further easing in the coming months, projecting a convergence of inflation to 3% by the third quarter of 2026.Meanwhile, the Federal Reserve (Fed), after pausing its easing cycle, projected two rate cuts in 2025, according to the Summary of Economic Projections (SEP) released in December. This divergence in monetary policy outlooks is expected to further narrow the interest rate differential between Mexico and the US.Market analysts predict that Banxico will likely reduce its primary reference rate to 8.50%, according to the central bank's latest private economist poll. The USD/MXN pair continues to exhibit an upward bias, with strong support at the 50-day Simple Moving Average (SMA) at 20.57. Should USD/MXN surpass 20.70, resistance levels lie at the January 17 daily peak of 20.90, followed by 21.00 and the year-to-date (YTD) high at 21.29. Conversely, if USD/MXN declines below the 50-day SMA, the next support level is the 100-day SMA at 20.22, potentially leading to further losses towards 20.00
Mexican Peso USD Banxico Fed Inflation Interest Rates Nonfarm Payrolls USD/MXN
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