USD/MXN near multi-year lows, as Fed Chair Powell signals flexibility, raises rates by 25 bps

• Fed Chair Powell Signals Monetary Policy Meeting by Meeting, Raises Rates by 25bps.
• US Central Bank Ready to Take Action, Including Raising Rates, Says Fed Chair.
• USD/MXN Price Analysis: Likely to break to new multi-year lows below 18.00.

The USD/MXN plummets to fresh six-year lows, last seen in September 2017, after the US Federal Reserve (Fed) raised rates by 25 bps, though it opened the door for pausing. The USD/MXN is trading at 17.8865, down 0.50% at the time of typing.

The US Federal Reserve Chair Powell took the stance after he and his colleagues decided to raise rates by 25 bps and signaled that the US central bank would determine its monetary policy, meeting by meeting. Jerome Powell added that inflation is too high and the labor market is tight.

When asked about rate cuts, he said it “would not be appropriate to cut rates, given our view that inflation will take some time to come down.” Powell added that the US central bank is “prepared to do more,” including rising rates if needed, and that officials did not decide to pause at the upcoming June meeting.

On Wednesday, the US central bank hiked rates by 25 bps to the 5.00% - 5.25% area but tweaked its language regarding additional rate hikes. The Fed shifted to being data-dependent and will asses future decisions based on information about the economy, inflation, and the overall financial markets behavior.

Policymakers added that ongoing tightening of credit conditions could help the Fed to get inflation to its 2% target. Although today’s Fed decision was perceived as dovish, officials reiterated that inflation is elevated and the labor market robust. Regarding the balance sheet reduction, the FOMC decided to continue as planned.

USD/MXN Technical Analysis

As Fed Chair Powell spoke in his press conference, the USD/MXN reached a multi-year low at around 17.8283. Nevertheless, the USD/MXN buyers lifted the exchange rates to the current level. If USD/MXN buyers want to shift the bias to neutral, they must reclaim the 20-day EMA at 18.0566, followed by the 50-day EMA at 18.2511. A breach of the latter will expose the 100-day EMA at 18.5732.