USD/MXN stumbles further amidst strong Mexican Peso, Fed Rate cut bets cool off

• USD/MXN dips as Banxico holds rates steady, despite global economic concerns.
• Fed rate cut expectations cool off, enhancing MXN’s performance against USD.
• Economic Activity in Mexico beats estimates, further fueling MXN’s appreciation.

USD/MXN extend its losses toward last Friday’s daily low of 17.1308 after last Thursday’s Bank of Mexico (Banxico) monetary policy decision to hold rates unchanged at 11.25%, its second pause after May’s decision. A risk-off impulse was no excuse for the Mexican Peso (MXN) to continue its strong advance against the US Dollar (USD). At the time of writing, the USD/MXN is trading at 17.1363, down 0.21%.

Banxico’s steady rates and positive economic data propel MXN; risk a grips Wall Street

Wall Street remains trading negatively. Risk aversion is the primary driver of the markets amidst a light economic calendar in the United States (US). The Dallas Fed Manufacturing Index for June contracted to -23.2, above estimates, yet still in recessionary territory, portraying an economic slowdown. Even though it contracted, it improved the most in the last three months.

Meanwhile, market participants lowered their bets for a possible rate cut by the US Federal Reserve (Fed), as shown by the CME Fed Watch Tool, after Fed officials revised the Federal Funds Rate (FFR) peak to 5.6%. Nevertheless, money market futures do not believe the Fed will raise rates twice, with only one 25 bps increase, toward the end of the year.

That helped the Mexican Peso (MXN) to prolong its appreciation, despite developments in Russia, with the Russian private group Wagner set to enter Moscow amid an ongoing disagreement with Russian commanders, which according to Yevgeny Prigozhin, the leader of the group, botched Russia’s military campaign in Ukraine.

The US Dollar Index (DXY) tracks the performance of six currencies vs. the American Dollar (USD), which tumbled 0.12%, down to 102.737, undermined by falling US Treasury bond yields.

Across the border, last week’s Banxico decision did not help USD/MXN buyers, as the pair halted its rally and made a U-turn at around 17.2644. Monday-s Mexican agenda featured General Economic Activity in May rose by 2.5%, exceeding estimates of 2.3%, according to Reuters. Meanwhile, month-over-month (MoM) readings rose by 0.8%, exceeding March’s contraction of -0.2%.

USD/MXN Price Analysis: Technical outlook

The USD/MXN is downward biased, set to continue to fall at around the 17.00 figure. As the 20-day Exponential Moving Average (EMA) emerged around 17.2897, further continuation is expected below 17.1000. A breach of the latter will expose the year-to-date (TD) low of 17.0219 before surpassing the 17.00 handle. On the flip side, if USD/MXN buyers claim the 20-day EMA, that could lift the USD/MXN spot price higher, at least to the 50-day EMA at 17.5799.