- Mexico’s January mid-month inflation drops to below 4%, boosting optimism and supporting Banxico’s dovish outlook.
- Unexpected rise in US jobless claims raises due to weather distortions.
- Trump’s approving remarks about Mexico at WEF ease trade tensions and strengthen the Peso.
The Mexican Peso (MXN) strengthened against the Greenback during the North American session, hitting a ten-day high on upbeat inflation data from Mexico and a worse-than-expected jobs report from the United States (US). Furthermore, US President Donald Trump’s positive comments about Mexico at the World Economic Forum (WEF) were a tailwind for the Mexican currency. The USD/MXN trades at 20.37, down 0.54%.
Inflation in Mexico fared better than expected, as headline mid-month inflation for January dipped to 3.69%, below the 4% mark for the first time in four years, revealed the Instituto Nacional de Estadistica Geografia e Informatica (INEGI). Underlying inflation rose moderately, though both readings remained within Banco de Mexico’s (Banxico) 3% plus or minus 1%, justifying Banxico’s intentions to lower borrowing costs on February 6.
In the US, the number of Americans filing unemployment claims rose sharply last week, according to data revealed by the US Department of Labor. The report showed that bad weather, along with fires in Los Angeles, could increase claims in the upcoming weeks.
Meanwhile, the Federal Reserve (Fed) is expected to keep rates unchanged next week. The main reasons behind that decision are the robustness of the US economy, as portrayed by healthy economic growth, a strong labor market and stickier inflation numbers.
On the other hand, Mexico’s economy has continued to cool down and is expected to grow by just 1% in 2025. The slowdown benefited the disinflation process and supports Banxico’s dovish stance.
Recently, US President Donald Trump said he would demand respect from other nations and said that he’s dealing with Mexico “very well.” After these remarks, the USD/MXN pair extended its losses.
This week, Mexico’s economic docket will feature Economic Activity for November, which is expected to improve in monthly figures but not yearly. On the US side, traders are awaiting S&P Global Flash PMIs and Consumer Sentiment.
Daily digest market movers: Mexican Peso appreciates as inflation edges lower
- The Mexican Peso advances versus the US Dollar even though the lowest inflation figures suggest that Banxico will cut rates. Contrarily, the Fed is expected to keep monetary policy unchanged and wait for the March meeting.
- Mexico’s mid-month inflation in January rose by 3.69% YoY, down from 4.44%. Core inflation for the same period increased from 3.62% to 3.72% YoY.
- Citi revealed its Expectations Survey, in which Mexican private economists revised Gross Domestic Product (GDP) figures for 2025 downward to 1%.
- Regarding inflation expectations, analysts estimate headline and core to inflation to dip below 4%, each at 3.91% and 3.68%, while the exchange rate would likely end near 20.95.
- Economists estimate that Banco de Mexico (Banxico) will lower rates by 25 basis points (bps) from 10.00% to 9.75%, though some analysts expect a 50-bps cut at the February 6 meeting.
- The divergence between Banxico and the US Federal Reserve (Fed) favors further upside in the USD/MXN pair.
- US President Trump ordered a comprehensive review of US trade policy, setting an April 1 deadline for recommendations that could significantly transform the country’s trade relations, including the US-Mexico-Canada Agreement (USMCA), set for its first revision in 2026.
- Money market futures have priced in 44 bps of Fed rate cuts in 2025, according to CME FedWatch Tool data.
USD/MXN technical outlook: Mexican Peso climbs as USD/MXN tumbles below 20.30
USD/MXN tumbled below 20.50 sponsored by Trump’s friendly rhetoric on Mexico, which has pushed the exchange rate below key support levels like the 20 and 50-day Simple Moving Average (SMA) each at 20.55 and 20.37.
Despite this, the uptrend remains in play.f sellers push the price below the January 6 swing low of 20.22, it will clear the path to challenging the 100-day SMA at 20.05. On further weakness, the exotic pair could test 19.50.
Conversely, for a bullish resumption, the USD/MXN must climb above 20.55 so buyers have a clear path to challenge the year-to-date (YTD) high at 20.90. Once surpassed, the next stop would be 21.00, followed by March 8, 2022, peaking at 21.46 ahead of the 22.00 figure.
Banxico FAQs
The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican Peso (MXN), and to set the monetary policy. To this end, its main objective is to maintain low and stable inflation within target levels – at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%.
The main tool of the Banxico to guide monetary policy is by setting interest rates. When inflation is above target, the bank will attempt to tame it by raising rates, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN. The rate differential with the USD, or how the Banxico is expected to set interest rates compared with the US Federal Reserve (Fed), is a key factor.
Banxico meets eight times a year, and its monetary policy is greatly influenced by decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee usually gathers a week after the Fed. In doing so, Banxico reacts and sometimes anticipates monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico did it first in an attempt to diminish the chances of a substantial depreciation of the Mexican Peso (MXN) and to prevent capital outflows that could destabilize the country.
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