USD/MXN stages a comeback on upbeat US economic data amidst US ceiling talks

• USD/MXN rebounds to around 17.8040 after a more than 2000-pip dip.
• Robust US labor market data and Q1 growth revision boost the USD/MXN from 17.7000 to a daily high of 17.8785.
• Upcoming data: Mexico’s Q1 GDP, US Durable Good Orders, and Consumer Sentiment reports are set to sway the USD/MXN exchange rate.

USD/MXN stages recovery after diving more than 2000 pips, below the 20-day Exponential Moving Avera(EMA), which, acting as a solid support price level, capped the USD/MXN pair losses amidst a risk-off impulse. US political developments about raising the debt ceiling, and upbeat economic data amidst political uncertainty in Mexico, were the main drivers of USD/MXN price action. At the time of writing, the USD/MXN climbs and trades at around 17.8040.

Political uncertainty in Mexico and robust US data drive USD/MXN recovery; upcoming economic readings to impact the exchange rate

Discussion in Washington shows signs of moving forwards, according to US President Joe Biden, while Kevin McCarthy, the US House Speakers added that not “everybody is going to be happy at the end of the day” regarding making some concessions as Democrats and Republicans try to agree on a deal.

Aside from hits, the economy of the United States continues to grow, as shown by solid labor market data and a revision of growth figures for Q1 2023. Initial Jobless Claims for the week ending on May 20 rose by 229K less than the 245K expected by analysts, while the Q1 Gross Domestic Product (GDP) on its second estimate jumped to 1.3%, from 1.1% in the advanced and estimated data.

Once the US data crossed the wires, the USD/MXN increased from around the daily low of 17.7000 to the daily high of 17.8785. Notably, the US Dollar Index (DXY), a gauge that measures the buck’s value against a basket of six currencies,  is trading nearby two-month highs reached during the day at 104.312, putting some ground between the 200-day EMA at 103.748 and the current price.

Across the border, the Mexican economic agenda revealed the Trade Balance of Mexico, which printed a deficit of $2,965 billion in April when adjusted for seasonal swings, INEGI reported.

During the week, the USD/MXN traded with gains of 0.30% after achieving two successive weeks of losses, dragging the pair to multi-year new lows at around 17.4238. However, the USD/MXN has been recovering more than 2.50% since the last week, as the USD/MXN pair is approaching the psychological 18.0000 figure.

Upcoming events

The Mexican economic agenda will feature final readings for Q1 Gross Domestic Product (GDP), expected at 1% in QoQ readings, while compared to the last year, the Mexican economy is estimated to grow by 3.9%. Worse than predicted figures, the Bank of Mexico (Banxico) pausing rates could trigger flows toward the safe-haven US Dollar, sending the USD/MXN pair toward the 18.00 handle. On the US front, Durable Good Orders, Consumer Sentiment, and the University of Michigan Consumer Sentiment are expected to rock the boat in the USD/MXN exchange rate.

USD/MXN Technical Levels