The Mexican Peso (MXN) appreciated against the US Dollar (USD) on Friday, trading at 19.86, down over 1% due to declining US consumer sentiment impacting the USD. Despite negative reports on Mexico’s Consumer Confidence and Industrial Production, the Peso’s strength persisted.
Mexico’s Industrial Production fell to -2.9% year-on-year, compared to -2.7% in December, reflecting economic concerns. Forecasts from Banxico indicate a nationwide growth decline of -0.6% in Q4, with a cautious economic outlook expected.
Us Consumer Sentiment And Inflation Outlook
The University of Michigan’s Consumer Sentiment Index dropped to 57.9 in March, below estimates, while inflation expectations climbed from 4.3% to 4.9%. Money market futures suggest 67 basis points of easing from the Fed by year-end.
Technical analysis shows USD/MXN has fallen below 20.00, reaching a four-month low of 19.84. The Relative Strength Index indicates bearish momentum, with primary support at 19.67. A recovery would require surpassing the initial resistance at 20.00.
Banxico, Mexico’s central bank, aims to stabilise the Peso and control inflation around 3%. It meets eight times yearly to assess monetary policy, usually after the Fed’s meetings.
The Peso showed resilience on Friday, strengthening past the 20.00 level and settling around 19.86 against the Dollar. This movement came despite Mexico’s weaker-than-expected economic reports, meaning this shift had more to do with changes in the US than within Mexico itself. Friday’s drop in the Consumer Sentiment Index in the US was the key influence, causing concern among market participants and putting pressure on the Dollar.
Mexico’s industrial output presented more signs of strain, continuing its decline on a yearly basis. A contraction of -2.9% is not a good signal for economic activity, even more so given the slightly smaller decline in December. It adds to Banxico’s cautious growth expectations, reinforcing their forecast that the economy shrank -0.6% in the final quarter of last year. Such figures should put traders on alert for any adjustments to interest rate expectations from the central bank.
The updated inflation outlook in the US also played a role in shifting expectations. As consumer sentiment faltered, inflation expectations nudged up, rising from 4.3% to 4.9%. This caused some recalibration in money markets regarding future Fed moves, with traders currently pricing in around 67 basis points of easing by year-end. If that outlook changes, the dynamics between these two currencies could shift again.
Technical Analysis And Central Bank Policy
From a technical trading perspective, the current setup remains in favour of the Peso, given the break below 20.00. The drop to 19.84 marked a four-month low, with indicators like the Relative Strength Index showing that bearish momentum remains. If further downside pressure emerges, traders will watch support around 19.67. On the other hand, regaining 20.00 would be the first step in restoring upward movement.
At the policy level, the central bank in Mexico remains focused on keeping inflation near 3% while maintaining currency stability. The institution meets eight times per year, typically aligning its decisions closely after the Federal Reserve’s updates. The contrast in expected policy actions between the two central banks will be something to monitor as we move through the coming weeks.
