Mexican Peso set for weekly gains as weak US data offsets Banxico's rate cut
- Mexican Peso appreciates as USD/MXN dips to 19.47 after disappointing US sentiment data.
- Banxico cuts benchmark rate by 50 bps, but Peso holds firm as US data dents Greenback strength.
- U. of Michigan survey shows inflation expectations rising and consumer sentiment at multi-year low.
- Traders now price in 51 bps of Fed easing by year-end; eyes turn to next week’s Mexico GDP and US PMIs.
The Mexican Peso (MXN) erases its previous losses against the US Dollar (USD) on Friday and Is set to finish the week with gains. A day ago, Banco de Mexico (Banxico) reduced the main reference rate, though it failed to weigh on the Mexican currency, which has gained some steam following weak US economic data. At the time of writing, the USD/MXN trades at 19.47, down 0.09%.
Banxico reduces rates, eyeing additional easing; US Consumer Sentiment deteriorates
On Thursday, Banxico unanimously decided to reduce interest rates by 50 basis points (bps) for the third straight meeting in 2025, and it has opened the door for additional cuts of the same magnitude. Although the Mexican institution reduced the rate differential to 400 bps with US Treasuries, a deterioration in US Consumer Sentiment drove the USD/MXN exchange rate lower.
The University of Michigan (UoM) revealed that American consumers are growing increasingly pessimistic about the current state of the economy, as indicated by May’s poll. Additionally, inflation expectations had risen well above the Fed’s 2% target, which could pressure the US central bank, which has become cautious in assessing the impact of the Trump administration's controversial trade policies on the economy.
Other US economic data revealed earlier showed that Housing Starts increased while Building Permits fell. Meanwhile, the US Department of Commerce reported that Import Prices edged up in April, exceeding estimates.
The increase in Import Prices, along with US households expecting higher prices, could suggest the Fed would stand pat on interest rates. Nevertheless, market participants think otherwise and have increased their bets on further easing by the Fed, projecting 51 bps cuts towards the year's end.
For the next week, USD/MXN traders will be eyeing Mexican Retail Sales and economic growth data. In the US, the schedule will feature Fed speakers, as well as flash PMIs and housing data, which will be closely watched.
Mexican Peso daily market movers: Rises despite Banxico’s dovish stance amid weak US Data
- Banxico left Mexico’s main reference rate at 8.50%. The board expects additional calibration to monetary policy, anticipating that the current inflationary environment would allow it to continue the easing cycle. The central bank projects that headline inflation will converge on the 3% goal by Q3 2026.
- Officials at Banxico added that the changes in economic policy by the US administration have added uncertainty to the forecasts.
- Analysts at Goldman Sachs, Finamex, Skandia, Pantheon Macroeconomics, and Valmex project Mexico’s main reference rate at around the 7.25% to 7.75% range by the end of 2025. The five economists polled revealed that they expect 50 bps of easing for the June 26 meeting, according to El Economista.
- The University of Michigan Consumer Sentiment Index fell to 50.8 in May, its lowest level since July 2022, missing the forecast of 53.8 and down from April’s 52.2, reflecting a deepening of consumer pessimism.
- Import Prices rose 0.1% MoM in April, beating both expectations and March’s -0.4% decline, suggesting modest upward pressure on input costs.
- The December 2025 fed funds rates futures contract shows that market players expect 54 basis points of easing.
USD/MXN technical outlook: Mexican Peso climbs as USD/MXN poised for daily close below 19.50
The USD/MXN consolidated on Friday, although it appears poised to extend its losses as the week concludes. Momentum is tilted to the downside, as the Relative Strength Index (RSI) stands below the 50 neutral line, indicating a bearish trend despite being slightly flat.
That said, the first support is the current year-to-date (YTD) low of 19.29 ahead of the 19.00 figure. On the other hand, if USD/MXN rises past 19.50, the next resistance would be the 20-day Simple Moving Average (SMA) at 19.92, ahead of the 20.00 figure.
Mexican Peso FAQs
The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.
The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.
Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.
As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.