Mexican Peso: Downward momentum returns after 200-DMA break – Societe Generale

The Mexican Peso (MXN) continued its downward trend on Tuesday, slipping more than 0.4% as investors decreased their exposure to the currency following the Federal Reserve's interest rate hike. The USD/MXN exchange rate currently stands at 17.29, breaching the 100-day Simple Moving Average (SMA) at 17.26. In late February 2023, the Bank of Mexico (Banxico) had reduced the interest rate differential to 6.50% favoring the Mexican Peso, leading to a low of 16.26 in April 2024.

However, recent August retail sales data showed growth from a -0.2% month-on-month contraction to -0.1%, yet it fell short of the estimated 0.2% expansion. Expectations of an end to Middle East tensions have not boosted the Mexican Peso's performance, as Banxico is anticipated to maintain interest rates unchanged at its upcoming meeting.

Fed officials' hawkish remarks indicate more rate increases may be necessary to achieve the 2% target, with a 90% probability of another rate hike by December. The Mexican Peso's performance is influenced by factors such as the Mexican economy's performance, Banxico's policies, foreign investment, remittances from Mexicans living abroad, geopolitical trends, oil prices, and the central bank's mandate to maintain low and stable inflation levels.