Title: Mexican Peso Continues its Strong Comeback, Achieving Unseen Milestone in Decades
Subtitle: US Weak Economic Data and Mexican Central Bank’s Actions Drive USD/MXN Pair Down
The Mexican peso has defied expectations this year, emerging as one of the best-performing currencies in the world. Its unprecedented strength persisted in recent months when weak US economic indicators and the Mexican central bank’s aggressive measures influenced the USD/MXN pair.
Last week, the US reported underwhelming job figures and continued deflation. The employment report showed an addition of over 209,000 jobs in June but fell short of the estimated 230,000. Furthermore, the US Consumer Price Index (CPI) dropped to 3.0%, with the core CPI excluding volatile components falling to 4.8%. These numbers suggest that headline inflation is likely to approach the Federal Reserve’s 2.0% target by December, and subsequently pushed the US Dollar Index () below $100.
The USD/MXN pair also experienced a significant decline due to the proactive actions of the Bank of Mexico. Beginning in June 2021, the central bank raised interest rates by 0.25% and has since continued to increase rates from 4.25% to 11.25%. This sustained period of unchanged rates for the last three months is expected to eventually lead to rate cuts later in the year, according to analysts.
The strength of the Mexican peso has had a positive impact on the country’s inflation, and recent data revealed that headline inflation fell to 5% in June.
Looking at the USD/MXN exchange rate on a monthly chart, it is evident that a sharp downward trend has persisted since 2020. The unprecedented seven consecutive months of decline reflect the peso’s resilience. In June, the pair breached a crucial support level at 17.44, marking its lowest point since July 3.
Moreover, the USD/MXN price has fallen below both the 50 and 100-day moving averages, while the Relative Strength Index (RSI) confirms the downtrend. As a result, the path of least resistance for the pair appears to be downward, with traders keeping a close eye on the next significant level at 16.
In conclusion, the extraordinary comeback of the Mexican peso has caught the attention of global markets. Supported by weak US economic data and the assertive actions of the Bank of Mexico, the currency continues to show strength and resilience. As the USD/MXN pair faces further downward pressure, analysts and traders are closely monitoring key support levels that could pave the way for further appreciation of the peso in the coming months.
The original version of this article was published by Invezz.com.