USD/MXN drops and remains below 17.0000 due to US inflation cooling down, risk-on mood

• USD/MXN recovers slightly after touching multi-year lows of 16.8083 but stays below the 17.0000 figure.
• Initial Jobless Claims in the US rose less than expected, while US Producer Price Index (PPI) for June grew by 0.1% MoM, less than estimates.
• With no Mexican economic data, USD/MXN traders are focused on US dynamics.

USD/MXN resumes its downtrend after touching muti-year lows of 16.8083, remains below the 17.0000 figure on Thursday after data from the United States (US) shows the Federal Reserve’s (Fed) job is about to be achieved, as inflation continues to edge lower. At the time of writing, the USD/MXN is trading at 16.8682 after hitting a daily high of 16.9619.

Mexican peso gains ground as US Dollar weakens amid lower-than-expected jobless claims, PPI

The USD/MXN drops due to improved risk appetite, to the detriment of safe-haven peers, like the US Dollar (USD). Data from the US Department of Labor (DoL) revealed that Initial Jobless Claims for the last week climbed less than estimates of 250K, standing at 237K. The Fed’s Beige Book showed that demand for labor “remained healthy” in June, though it noted that hiring “was getting more targeted and selective.”

At the same time, the US Producer Price Index (PPI) for June expanded by 0.1% MoM, exceeding May’s 0.4% plunge but was beneath estimates of 0.2%. On year-over-year (YoY) figures, PPI grew 0.1%, below forecasts of 0.4%, while the Core PPI, which excludes volatile items, increased 0.1% MoM, unchanged from May, accelerating below estimates of 0.2%. Yearly Core PPI cooled down compared to expectations of 2.6% and came at 2.4%. Hence PPI data followed suit with a soft US CPI report that could refrain Fed officials from lifting rates twice, as they previously commented after the FOMC’s June meeting.

An absent Mexican economic docket leaves USD/MXN traders focused on the US dynamics. As long as the interest rate differential between the US and Mexico favors the latter, further downside is expected. However, traders must know that political risks are beginning to boil in Mexico as general elections loom for June 2024.

USD/MXN Price Analysis: Technical outlook

The USD/MXN downtrend would likely continue as the pair remains below the 17.00 mark. Sellers eyeing the October 2015 swing low of 16.3267 keeps the USD/MXN pressured, with the next support eyed at 16.5000 before sellers reclaim the latter. The following support would emerge at 16.00. Conversely, if USD/MXN buyers regain the 17.0000 figure, it could exacerbate a recovery toward the 20-day Exponential Moving Average (EMA) at 17.1073 short term. The USD/MXN must surpass the 17.4038 area to switch the bias to neutral.