The Mexican Peso (MXN) weakened against the US Dollar (USD), extending weekly losses following the Federal Reserve’s (Fed) decision to hold interest rates steady but signal a potential cut in September. Despite initial gains, the USD/MXN pair is currently trading at 18.85, a decline of over 1%.
USD/MXN Market Sentiment:
Risk aversion in global markets due to weaker-than-expected US economic data and geopolitical tensions is driving investors toward the safe-haven US Dollar, putting pressure on the Mexican Peso.
USD/MXN Economic Data:
Mexico: Business Confidence in July remained unchanged, while the S&P Global Manufacturing PMI contracted for the first time since September 2023, raising concerns about the country’s economic health.
US: Recent data, including rising jobless claims and a decline in manufacturing activity, has fueled recession fears and increased expectations of Fed rate cuts. The upcoming Nonfarm Payrolls report for July will be closely watched for further confirmation of the labor market’s weakness.
Fed’s Stance:
While the Fed kept interest rates unchanged, Chair Jerome Powell indicated that a rate cut in September could be “on the table” if the labor market continues to weaken. This dovish stance, combined with weaker-than-expected economic data, has led market participants to price in multiple rate cuts by the Fed this year.
USD/MXN Technical Analysis:
USD/MXN has recovered from recent lows and is now targeting the 18.75 area. The short-term trend remains bullish, with potential for further upside towards the year-to-date (YTD) high at 18.99 and the psychological 19.00 mark.
However, a drop below 18.50 could lead to a retest of the 18.00 level and the 50-day Simple Moving Average (SMA).