USD/MXN dives sharply despite hawkish Fed; eyes YTD low ahead of Mexico’s GDP

• USD/MXN trades at 16.7187, down 0.13%, as the Mexican Peso capitalizes on interest rate differentials and Banxico’s hawkish outlook.
• Despite Powell’s hawkish remarks, the US Dollar Index dropped to a daily low of 103.977, providing a tailwind for the Peso against the greenback.
• A busy week ahead features Mexican Q2 growth figures and key US economic indicators, which could introduce new volatility to the USD/MXN pair.

The Mexican Peso (MXN) resumed its gains against the US Dollar (USD) due to the interest rate differential of the former against the greenback, despite last Friday’s hawkish remarks by the US Federal Reserve Chair Jerome Powell. The USD/MXN is eyeing a fall to test the year-to-date (YTD) low of 16.6238, but it trades at 16.7187, down 0.13%.

USD/MXN dips as Banxico keeps its hawkish stance, and US Dollar Index retreats

US equities depict investors’ positive mood amid an absent US economic calendar. Last week’s Fed Chair Jerome Powell’s speech weighed on the USD/MXN, though by the end of the New York session, the MXN extended its gains. The US Dollar Index, a gauge of the buck’s value against a basket of six currencies, drops to its daily low at 103.977, a headwind for the USD/MXN.

The Fed Chair Jerome Powell said that despite two good reports on inflation, it would be appropriate to tighten monetary policy and that they would proceed “carefully” when choosing to hike rates or stay put. Powell states they would remain data-dependant and warranted additional hikes if growth and employment remained solid.

Developments in the Asian session witnessed China’s delivering stimulus amidst its troubled property sector and its equity markets. That spurred a risk-on response, though stocks remained pressured as global central banks would likely continue to tighten monetary conditions.

The Bank of Mexico (Banxico) policymakers remain hawkish on the Mexican front, as the latest meeting minutes revealed. Even though headline inflation continued to decelerate to 4.67% in August, the Mexican central bank would remain “cautious” given the inflationary outlook, with one member highlighting that Banxico could remain on hold for the rest of 2023.

In the week ahead, the Mexican economic agenda will deliver growth figures for the second quarter on Tuesday. The US docket will reveal Home prices, JOLTs Jobs Opening, and the CB Consumer Confidence indicator.

USD/MXN Price Analysis: Technical outlook

The pair remains downward biased, as the 20-day Simple Moving Average (SMA) turned flat, though it remains above the 50-day SMA. With the USD/MXN managing to print successive series of lower lows, the YTD low of 16.6238 could be tested in the near term, followed by the October 2015 daily low of 16.3267. Contrarily, the USD/MXN could shift bullish if it reclaims the 17.0000 figure.