Mexican Peso Plummets: Weekly Decline Nears 4%

Mexican Peso Plummets: Weekly Decline Nears 4%

The Mexican Peso hit a yearly low of 19.22 against the US Dollar, dropping over 1% daily and nearly 4% weekly. Concerns about the US economy have impacted Mexico, its largest trading partner, leading to a significant shift in market sentiment.

Mixed Economic Signals

Mexico’s recent economic data has been mixed:

• Unemployment Rate: Increased from 2.6% in May to 2.8% in June.
• Gross Fixed Investment: Slightly declined from 0.8% to 0.7% in May.
• Manufacturing PMI: Contracted to 49.60 in July from 51.10 in June, signaling a slowdown.

US Economic Data Disappoints

US economic indicators have also fallen short:

• Nonfarm Payrolls: Reported at 114K in July, below the expected 175K.
• Unemployment Rate: Rose from 4.1% to 4.3%.
• Average Hourly Earnings: Decreased from 0.3% to 0.2%.

These disappointing figures have heightened recession fears, prompting traders to avoid risk-sensitive assets like the Peso.

Market and Fed Expectations

Speculation about the Federal Reserve cutting interest rates is growing. While some officials have downplayed a significant rate cut, many banks now anticipate a 50 basis points reduction in September.

Technical Analysis: USD/MXN Outlook

The USD/MXN pair surged above the 19.00 level, reaching a high of 19.22. The Relative Strength Index (RSI) indicates overbought conditions, but momentum favors further gains.

• Resistance Levels: 19.50 and 20.00.
• Support Levels: Below 18.42, potentially down to 17.50.

Understanding the Mexican Peso

• Key Drivers: Economic performance, Banxico’s policies, foreign investment, remittances, geopolitical trends, and oil prices.
• Impact of Banxico Decisions: Higher interest rates can strengthen the Peso, while lower rates can weaken it.
• Economic Data Influence: Strong data attracts investment, while weak data leads to depreciation.
• Risk Sentiment: The Peso thrives during risk-on periods but weakens in times of uncertainty.

The Mexican Peso’s recent decline underscores the interconnectedness of global economies. As US economic uncertainty persists, the Peso’s outlook will hinge on forthcoming data and central bank actions. Stay informed to navigate this volatile market effectively.