Mexican peso strengthens against the US dollar as risk appetite rises
The Mexican peso (MXN) has continued to strengthen against the US dollar (USD) for the fourth consecutive day, supported by strong economic data from the United States. The USD/MXN pair is currently trading at 17.1127, down 0.23% after hitting a daily high of 17.2050.
The US Department of Commerce recently reported that retail sales in August fell short of expectations, rising only 2.5% on a year-on-year basis. However, the monthly reading exceeded forecasts. Rising oil prices have contributed to the increase in sales, while inflation has also risen as expected.
In contrast, the Producer Price Index (PPI) revealed by the US Bureau of Labor Statistics recorded substantial growth, with prices paid by producers advancing 1.6% year-on-year in August, above the forecasted 1.2%. This marked the largest increase in over a year. Data on jobless claims also indicated a strong labor market, with initial claims for the week ending September 9 coming in at 220,000, below the consensus of 225,000.
The fluctuation in US Treasury yields in response to the economic data has played a role in boosting the US dollar. The 2-year note, which is particularly sensitive to interest rates, initially yielded 5.035% before falling below the 5.0% threshold. This shift has been reflected in the Dollar Index (DXY), which tracks the performance of the dollar against a basket of six currencies, rising by 0.40% to 105.17.
Meanwhile, economists in Mexico have raised concerns over the country’s budget proposal for 2024. The plans would widen the deficit from 3.3% to 4.9% of the Gross Domestic Product (GDP). This has generated mixed reactions, particularly as Mexico is approaching presidential elections. The prospect of higher borrowing has led to a 17 basis point increase in Mexico’s 10-year bond yield.
Technical analysis suggests that despite trading near weekly lows, the USD/MXN pair appears to have found support around the 17.10 level. However, it is currently limited by the presence of the 20-day moving average at 17.0919. If this level is broken, the next major support level would be the 50-day moving average at the psychological level of 17.0000. On the other hand, if the pair manages to recover, USD buyers will need to surpass the 100-day moving average at 17.2361 before they can threaten to reach 17.5000.