USD/MXN ascends amidst US soft PCE data, Mexican job losses

• USD/MXN holds steady near 17.1200 as easing US inflation slows US Dollar’s climb, despite concerning Mexican jobs data.
• US Dollar Index drops more than 0.50% after the softer-than-expected inflation report, allowing breathing space for the peso.
• Expectations of unchanged rates from Banxico favor MXN, potentially signaling further downside for the USD/MXN pair.

USD/MXN stays firm around the 17.1200 region as softer-than-expected inflation data in the United States (US) weighed on the US Dollar (USD), putting a lid on the USD/MXN advancement. Jobs data revealed in Mexico showed some deterioration, though the Unemployment Rate remains at 3%. At the time of writing, the USD/MXN is trading at 17.1204, almost flat, after hitting a daily low of 17.0440.

US Dollar’s rally tempers despite the deterioration in the Mexican labor market, as easing US inflation weighs on the buck

According to the US Department of Commerce report, US inflation decelerated in May. The US Federal Reserve (Fed) preferred gauge for inflation, the Core PCE, slowed from 4.7% to 4.6% YoY, aligned with estimates, as monthly figures edged lower, flashing signs of cooling down. The Personal Consumption Expenditure (PCE) as a whole edged lower sharply, past the 4% threshold, at 3.8% YoY from April 4.4%, with MoM data slowing to 0.3% from 0.3%.

Later the Chicago PMI improved to 41.5 but remained in contractionary territory. The University of Michigan (UoM) revealed June’s latest poll, with Consumer Sentiment hitting the 64.4 threshold, above the preliminary reading of 63.9.

On the Mexican front, unemployment increased and damaged the Mexican Peso (MXN) prospects. The labor market lost 648,340 jobs in May, its worst performance for a May report since records began in 2005, as reported by the Encuesta Nacional de Ocupación y Empleo (ENOE). The seasonally adjusted unemployment rate hit 3.0% in May, though headline figures were 2.9%.

After the US and Mexican data release, the USD/MXN climbed from 17.0600 to a four-day high of 17.1712 before trimming 5 cents, as the USD/MXN slid to the 17.1200 area. US Treasury bond yield continued to edge lower and weighed on the greenback. The US Dollar Index (DXY), which tracks the performance of a basket of six currencies against the US Dollar, drops more than 0.50%, slumping to 102.830.

Regarding central banks and expectations for monetary policy, the Fed is foreseen to raise rates in July, with odds at 87%, as reported by the CME FedWatch Tool. However, estimates for an additional quarter of percentage raise in November slid compared to yesterday’s odds at around 36%. The Bank of Mexico (Banxico) is expected to keep rates unchanged after two back-to-back meetings holding rates at 11.25%. That said, the interest rate differential still favors the MXN; hence further downside is expected in the USD/MXN pair.

USD/MXN Price Analysis: Technical outlook

The USD/MXN remains in choppy trading price action, capped within the 17.00-17.20 area, unable to pierce the 20-day Exponential Moving Average (EMA) at 17.2303, seen as the first resistance level for buyers. That would not be enough to shift the USD/MXN’s downtrend, as the May 17 low turned resistance at 17.4038 remains in a safe place and is the next price level to watch for buyers and sellers if the USD/MXN surpasses the 20-day EMA. Conversely, a fall below 17.0500 will expose the year-to-date (YTD) low of 17.0219 before the USD/MXN challenges 17.00.