Mexican Peso rebounds from yearly low on risk-appetite improvement

• Mexican Peso recovers as China's 5% GDP growth for 2024 boosts global sentiment.
• EU-Mexico trade agreement revival pre-Trump inauguration boosts Peso optimism.
• IMF and World Bank predict modest Mexican growth in 2025, cite domestic and US political risks.

The Mexican Peso (MXN) stages a recovery after weakening to a new yearly low of 20.93 and appreciates against the Greenback due to an improvement in risk appetite following China’s upbeat GDP figures. The USD/MXN trades at 20.72, down 0.38%.

During the Asian session, China announced its Gross Domestic Product (GDP) rose by 5% in 2024, meeting the government’s goal for the year. Other data showed that China’s industrial output outpaced retail sales while the unemployment rate increased.

Consequently, risk-sensitive currencies like the Mexican Peso rose. The Peso extended its rally following a Reuters report that the European Union (EU) and Mexico revived a stalled free trade agreement on Friday, days ahead of Donald Trump’s inauguration.

Meanwhile, the International Monetary Fund (IMF) and the World Bank updated their projections of the Mexican economy. The former estimates a 1.4% growth in 2025, while the latter foresees a slightly optimistic 1.5% increase. Both institutions mentioned that the economy faces risks, such as uncertainty over recently approved reforms and Trump’s return to the White House.

Next week, Mexico’s economic docket will feature Retail Sales, mid-month January inflation data and a proxy for GDP, Economic Activity for November.

Daily digest market movers: Mexican Peso advances as traders await Trump’s inauguration

• The Mexican Peso shrugs-off concerns ahead of Trump’s inauguration as the USD/MXN retreats below 20.80.
• However, the Mexican currency is not out of the woods. The divergence between the Banco de Mexico (Banxico) and the Federal Reserve (Fed) hints that further upside in USD/MXN lies ahead.
• Economists polled by Reuters revealed that GDP will grow 1.2% in 2025, compared to 1.6% last year. Additionally, they foresee Banco de Mexico (Banxico) cutting interest rates by at least 150 basis points to 8.50% by the end of the year.
• In the Fed’s latest Summary of Economic Projections (SEP), officials estimate they will cut interest rates by 50 basis points.
• US Industrial Production increased by 0.9% MoM, higher than estimates of 0.3%, crushing November’s 0.2% expansion.
• Money market futures had priced in 42.5 bps of Fed rate cuts in 2025, according to CME FedWatch Tool data.

USD/MXN technical outlook: Mexican Peso rises as USD/MXN dips below 20.80

USD/MXN is ongoing a pullback after hitting a new yearly high of 20.93. Momentum remains bullish as depicted by the Relative Strength Index (RSI), but expect a test of the 50-day Simple Moving Average (SMA) if the pair slumps below 20.50. A breach of the latter will expose the 50-day SMA at 20.36, ahead of challenging the 100-day SMA at 20.02.

Conversely, if buyers push the USD/MXN above 20.90, this could pave the way towards hitting the 21.00 psychological barrier. If cleared, the next resistance will be the March 8, 2022 peak at 21.46, followed by 21.50 and the 22.00 psychological level.