The Mexican Peso is continuing its decline. It has been affected by disappointing Retail Sales in Mexico. This is happening ahead of the Banxico rate cut.
US vs Mexico Data
US Retail Sales have outperformed expectations. In contrast, Mexico is facing economic challenges. The strong US data is supporting the US Dollar. The USD/MXN is trading at 20.20, with a 0.43% gain.
Banxico’s Rate Decision
Banxico’s rate decision is coming up. There could be a divided vote on the policy direction. This is due to inflation concerns. Pamela Diaz Loubet, a BNP Paribas Economist in Mexico, said a 25 basis point cut is expected in December. But the inflation reading might lead to a split vote among the Banxico Governing Board.
Fed’s Meeting and Impact
The US Federal Reserve has started its two-day meeting. It is expected to cut rates and release the Summary of Economic Projections (SEP). The SEP will update forecasts of inflation, growth, employment and interest rates. The so-called “dot plot” in the SEP is expected to give guidance on the Fed funds rate path. The swaps market has priced in a 100 basis point rate cut by the US Central Bank toward the end of 2025. But the upcoming Trump administration’s inflation-prone policies could change the Fed’s easing cycle.
Key Data This Week
This week, Mexico will have Aggregate Demand data, Private Spending, and Banxico’s interest rate decision. In the US, there will be Building Permits, the Federal Open Market Committee (FOMC) decision, and the Fed’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index. These could shape the monetary policy path of the US central bank.
Daily Market Movers
Mexico’s Retail Sales: In October, Retail Sales dropped from 0.1% to -0.3% month-on-month. This was below the estimated 0.2% growth. Year-on-year, sales plunged -1.2%, less than the expected -1.6% contraction and better than September’s -1.5%.
Banxico’s Survey: Banxico’s December private sector survey showed most expect inflation to end at 4.37% in 2024 and underlying prices at 3.60%, down from November’s 3.69%. The economy is expected to grow 1.60%, up from 1.53%, and the USD/MXN exchange rate is seen at 20.25. For 2025, the Mexican CPI is projected to drop to 3.80% and the core CPI to rise to 3.72%. GDP is expected at 1.12%, down from 1.20% estimated in November, and the USD/MXN spot price would end at 20.53.
External Pressures: The Peso has been under pressure from US President-elect Donald Trump’s harsh rhetoric. He threatened 25% tariffs on Mexican imports if the government doesn’t help fight illegal immigration and fentanyl trafficking. Analysts at JPMorgan suggested Banxico could lower rates by 50 basis points as inflation is falling faster than expected.
US Data Details: US Retail Sales rose by 0.7% month-on-month in November, up from 0.5% in October and above expectations. Yearly, sales climbed to 3.8%, up from 2.9%. Industrial Production improved in November but was still negative, at -0.1% month-on-month. It was up from October’s -0.4% but below the 0.3% forecast. The CME FedWatch Tool shows traders priced in a 99% chance of a quarter-point rate cut on Wednesday.
USD/MXN Technical Outlook
The USD/MXN uptrend is still there. The pair has made a series of higher highs and higher lows. But it retreated from yearly tops. For the uptrend to continue, buyers need to clear 20.32, the December 10 high. Then they can challenge 20.50. If it gets stronger, the next resistances are the December 2 daily high of 20.59, the year-to-date peak of 20.82, and 21.00. On the downside, if USD/MXN drops below the 50-day Simple Moving Average (SMA) at 20.10, the next support is 20.00. Further down, there is the 100-day SMA at 19.73. If that is breached, 19.50 will be exposed.
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