USD/MXN Pushing Higher Ahead of Banco de Mexico Interest Rate Decision

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Mexican Peso and USD/MXN Price, News and Analysis:

  • USD/MXN pulling back Monday’s weakness.
  • Mexican central bank is likely to leave policy measures unchanged.

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The Mexican central bank is set to leave interest rates untouched on Thursday after cutting them by 0.25% last month to the lowest level in five years. The central bank cut rates on February 11 after inflationary pressures eased and amid growing signs that economic activity in the country hadn’t picked up as expected. While no change is expected at this week’s meeting after inflation expectations picked up, another 25 basis point cut cannot be completely ruled out and this is likely to weigh on the Mexican Peso ahead of the decision. The Mexican government’s vaccination program is struggling with around just 4% of the population having had one jab and this will continue to press down on economic activity, leaving the door ajar for another interest rate cut.

Rising US Treasury yields have also exerted upward pressure on USD/MXN, narrowing the interest rate differential between the two currencies. The yield on the UST 10-year is currently around 10bps off its recent high but yields are expected to resume their upward path soon.

The recent volatility in the Turkish Lira has also weakened the Mexican Peso as emerging market sentiment was dealt a blow and USD/MXN looks set to retest resistance off the 200-day simple moving average shortly. The daily chart highlights that a series of lower highs were broken at the end of January and while the March 8 high at 21.636 may look a distance away, the pair have enough volatility to make this level a reasonable sort-term target. Initial support at 20.507 (50-day sma) ahead of the recent double low at 20.28.

USD/MXN Daily Price Chart (July 2020 – March 23, 2021)

USD/MXN Pushing Higher Ahead of Banco de Mexico Interest Rate Decision

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What is your view on USD/MXN – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.

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