The Mexican Peso (MXN) traded lower on Tuesday, extending its mild pullback from Monday, likely due to profit-taking after last week’s 3.9% rally against major currencies. Investor caution ahead of key events like the Federal Reserve (Fed) policy meeting on Wednesday has also weighed on the Peso.
Markets are speculating that the Fed may cut interest rates by 0.50%, which could further widen the gap between US and Mexican rates, making the Peso more attractive for investors. The Bank of Mexico’s (Banxico) base rate of 10.75% contrasts sharply with the Fed’s current 5.25%-5.50% band, potentially favoring the Peso if the Fed cuts rates.
Retail sales data released on Tuesday showed a modest 0.1% increase, reducing the likelihood of a large rate cut by the Fed.
The Peso also weakened against the British Pound (GBP) and the Euro (EUR). The Bank of England (BoE) and the European Central Bank (ECB) are expected to delay significant rate cuts due to ongoing inflation concerns.
Domestically, President Andrés Manuel López Obrador (AMLO) signed a decree on Sunday for judicial reform, addressing one of the most controversial aspects of the Morena-led government’s constitutional reforms. This has alleviated some investor concerns about foreign investment in Mexico.
At the time of writing, USD/MXN trades around 19.37, EUR/MXN at 21.54, and GBP/MXN at 25.55. Technical analysis shows USD/MXN forming a bearish “Three Black Crows” candlestick pattern, suggesting further declines in the short term.
