USD/MXN slides below the 100-DMA hovering around 20.4400 after Banxico’s minutes

• The Mexican peso strengthens during the day, up some 0.73% against the greenback.
• Banxico’s last meeting minutes stressed concerns over inflation, labor wages as new head Victoria Rodriguez takes the helm of Banxico.
• Mixed US macroeconomic data weakened the greenback vs. the Mexican peso.

On Thursday, during the New York session, the Mexican peso advances in the North American session, trading at 20.4387 at the time of writing. The market sentiment is mixed, as European stock indices closed in the red, whereas the US equity markets advance, except for the Dow Jones, down some 0.34%.

Banxico last meeting minutes shows its members are worried over inflation and higher wages

On Thursday, the Mexican central bank, also known as Banxico, released its last meeting minutes where the central bank hiked 50 basis points the benchmark rates, up to 5.50%.

The minutes showed that all of the members said that headline and core inflation expectations for 2021, 2022, and for the next 12 months increased again. Furthermore, the policymakers noted that economic integration with the US and high inflation levels spurred elevated prices in Mexico.

Banxico’s members said that the forecasts of inflationary pressures were revised upwards, especially in 2022. Also, the minimum wage increase between the Mexican government and business groups of 22% could add upward pressures on labor costs, per Banxico’s policymakers noted.

In the meantime, the US economic docket featured Initial Jobless Claims for the week ending on January 1, which showed an increase of 207K higher than the 197K estimated by economists. The 4-week moving average rose 204.5K, a tick more elevated than the 199.75K in the prior week. 

The Institute for Supply Management reported that the Services PMI in the US fell from 69.1 in November to 62.0 in December. Despite contracting, a reading above 50 indicates growth in the services sector. 

On Wednesday, the Federal Reserve released its December minutes. The US central bank noted that monetary policy accommodation was unnecessary and that a faster reduction of its bond-purchasing program was needed before hiking rates. Moreover, Fed members began discussions of a contraction of its balance sheet, which was perceived by a hawkish signal by the markets, with investors selling stocks aggressively. US money market futures have priced in an 80% chance of a rate hike in the March 2022 meeting.