Mexican Peso slides to April lows as Banxico shrugs off Fed gap
The Mexican Peso (MXN) extends its losses against the US Dollar (USD) on Thursday after the Bank of Mexico (Banxico) held the benchmark interest rate unchanged at 6.50%, disregarding the interest rate differential as a primary factor in setting monetary policy.
The Mexican Peso (MXN) has seen its value plummet to April lows as the Bank of Mexico (Banxico) decided to keep the benchmark interest rate at 6.50%, despite differing opinions on the primary factors in monetary policy decisions. The USD/MXN pair surged over 1%, reaching 17.75, the highest since late April. The central bank announced it would base its decisions on the ongoing disinflation process and expected behavior of its determinants, including the USD/MXN exchange rate.
Banxico affirmed that its monetary policy would not mechanically react to anticipated adjustments in the Fed funds rate. Mexico's central bank's inflation projections suggest that headline and core inflation will align with their 3% target by the fourth quarter of 2027. Recent core inflation data for Mexico showed a rise from 0.08% to 0.17% month-over-month, slightly below expectations of 0.2%.
However, headline inflation for the same period increased from 0.1% to 0.33%, surpassing forecasts of 0.26%. In the US, hawkish remarks from several Federal Reserve speakers have fueled speculation of a possible rate hike at their meeting on October 28. US jobless claims for the week ending September 19 were reported at 197K, below the previous week's figure of 198K and market forecasts of 201K.
On the technical side, the USD/MXN pair is currently trading at 17.7243, well above the recent 50/100/200-day simple moving averages cluster at 17.1647, indicating a bullish near-term bias. Nevertheless, the Relative Strength Index (14) stands at 79.67, suggesting overbought conditions and potential overstretching of the rally against the backdrop of downward resistance trend lines.
Major support for the pair is expected at the SMA cluster near 17.16, followed by stronger horizontal demand at 16.89, where previous lows created a structural floor. Should the pair break above the descending resistance trend lines drawn from the 18.17 and 21.08 cycle highs, it could face further challenges unless decisively broken.
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