USD/MXN stays firm at around $18.58 as PPI jumps

• USD/MXN clings to its gains, hovering nearby $18.58, after solid US data.
• US labor market data show a tight labor market, while the PPI came higher than expected.
• USD/MXN Price Analysis: Is still neutral-downward biased, but positive divergence could make a case for a rally to $19.00.

The Mexican Peso (MXN) lost some ground against the US Dollar (USD) on Thursday following US economic data, which sparked speculation that there could be more rate hikes than just two by the Federal Reserve (Fed) as money market futures data showed. At the time of writing, the USD/MXN exchanges hands at around 18.6481.

The US economic calendar is a busy one on Thursday. On the inflation side, the Producer Price index (PPI) for January rose by 0.7% MoM, above estimates of 0.4%, while Core PPI, which excludes volatile items, came at 0.5% vs. 0.3% foreseen. Even though year-over-year data was lower than the previous month, monthly figures underscore stubbornly stickier inflation that might need further tightening by the Fed.

Aside from this, Initial Jobless Claims for the week ending on February 11 hit 194K, below the prior reading of 196K, and below the 200K foreseen by analysts, emphasizing the tightness of the labor market, which remains pending of displaying the effects of 450 bps of rate hikes by the Fed.

In other data, the Philadelphia Fed Manufacturing Index plunged below estimates of -7.4, down to -24.3. Comments from the poll showed that cost increases accelerated for the first time in 10 months, contrarily to their own prices, which slowed down.

According to Reuters, “the survey’s two measures of prices, those paid by producers and those they charge their customers - both closely watched inflation indicators - showed margins were slimming. The prices paid index edged up to 26.5 from 24.5 to mark its first increase since April 2022, while the prices received index fell by 50% to 14.9, the lowest reading since February 2021.”

Meanwhile, the USD/MXN regained some composure after hitting a low of 18.5361. Albeit it hit a daily high of 18.6832, it has remained pressured, by market sentiment, with risk-on impulses increasing demand for the Mexican Peso.

Elsewhere, Cleveland Fed President Loretta Mester said she sees compelling evidence to hike rates by 50 bps in the upcoming meetings. She sees upside risks to inflation and justifies that the scenario supports the case for “overshooting” on policy. “Over-tightening also has costs, but if inflation begins to move down faster than anticipated, we can react appropriately,” Mester said.

USD/MXN Technical analysis

From a technical perspective, the USD/MXN remains neutral-downward biased. Still, the positive divergence between the Relative Strength Index (RSI) and price action is looming, meaning that prices could move higher. For a bearish continuation, the USD/MXN needs to break below the YTD low at 18.4836, so it can test the psychological $18.00. On the other hand, if the USD/MXN reclaims the 20-day EMA at 18.7714, the USD/MXN would be poised to challenge $19.00.