The Mexican Peso (MXN) has experienced depreciation against the US Dollar (USD), trading at 20.22, up 0.60%. Economic data released this week signals disinflation and a weakening economy, prompting traders to anticipate a 50 basis points rate cut by Banco de Mexico (Banxico) from 9.50% to 9%.
Recent metrics indicated a contraction in Mexico’s economic activity for the second month in a row, despite an uptick in January’s retail sales, the first robust performance since April 2024. Inflation figures show progress, with March’s early readings lower in headline and core categories.
Upcoming Economic Announcements
Looking ahead, Mexico will announce the Balance of Trade and Banxico’s interest rate decision, while the US will report on the core Personal Consumption Expenditures (PCE) Price Index. The Citi Expectations Survey estimates Banxico will reduce rates and predicts a GDP growth of 0.6% for 2025.
Technically, the USD/MXN remains upwardly biased, with key supports identified at 20.00 and 19.71. If the pair breaches 20.20, further tests at the 100-day and 50-day Simple Moving Averages could follow.
The performance of the MXN is influenced by domestic economic conditions, central bank policies, foreign investment, and oil prices. Banxico’s goal is to maintain stable inflation at 3%, adjusting interest rates accordingly to strengthen or weaken the Peso. Macroeconomic data is vital for the MXN’s valuation, impacting foreign investment levels and economic confidence.
The latest depreciation of the Mexican Peso against the US Dollar is a reflection of shifting economic conditions, as traders adjust their expectations for interest rates and economic growth. At its current rate of 20.22, the currency has weakened, with a 0.60% increase in the pair, suggesting broad market adjustments driven by economic signals.
This week’s data offers clear indicators of slowing inflation and a softening economy. The fact that Mexico’s economic activity has contracted for two consecutive months should not be overlooked. However, January’s retail sales provided a counterpoint, showing the first strong increase since April 2024. While this is a positive development, it does not erase concerns about broader sluggishness. Inflation figures reinforce this view, with March’s early readings coming in lower across both headline and core categories, reinforcing the idea that price pressures are easing.
With these trends in mind, traders now widely expect Banco de Mexico to deliver a 50-basis-point rate cut, bringing the benchmark rate down to 9% from 9.50%. This expectation is largely based on the belief that policymakers are responding to weakening growth while also acknowledging progress on inflation. The Citi Expectations Survey, which anticipates the same move, has also projected GDP growth of 0.6% for 2025, signalling that the path forward for the economy may be constrained.
Market Expectations And Technical Analysis
In the coming days, further updates will provide additional clarity. Mexico is set to release its Balance of Trade data alongside Banxico’s rate decision, while the US will report on the core Personal Consumption Expenditures (PCE) Price Index. Any surprises in these figures could shift expectations and affect market positioning.
The technical setup for USD/MXN remains biased to the upside. Key support levels have been identified at 20.00 and 19.71. If the pair sustains a breach above 20.20, further movement towards the 100-day and 50-day Simple Moving Averages could be forthcoming. This suggests that traders should watch price action closely, as a push higher could reinforce bullish momentum.
Broader influences on the Peso include domestic economic performance, central bank policy, investment flows, and oil prices. With Banxico focused on stabilising inflation at 3%, the institute adjusts rates to either support or curb currency movements. Macroeconomic data remains a central factor in determining the Peso’s valuation, affecting investment decisions and overall economic sentiment.
For those engaged in derivatives trading, these elements should be taken into account when assessing potential moves. With a likely rate cut on the horizon, the MXN’s positioning could shift further, especially if economic data continues to point towards slowing activity and easing inflation.
