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Breaking News: Mexican Peso Surges to Multi-Month High as US Dollar Struggles in Market Sell-Off

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  • The Mexican Peso hit a 15-week high against the US Dollar on Friday.
  • Mexico’s unadjusted Trade Balance hit a nine-month high in November.
  • Friday marks the last trading day before the holiday break.

The Mexican Peso (MXN) rallied to a fresh 15-week high on Friday as the broader market took one last opportunity to sell off the US Dollar (USD) heading into the extended holiday weekend before markets pared back on Greenback shorts heading towards the Friday closing bell.

Mexico’s unadjusted Trade Balance in November beat market expectations and improved to a nine-month high of 630 million in US Dollar terms. However, market impact is likely limited after the seasonally adjusted Trade Balance grew by a scant 300K.

US data drove the market on Friday, with mixed figures pulling Greenback bids in both directions, but the US Dollar heads into the holiday break notably in the red across the board, falling back against the majority of the major currency bloc.

Daily digest market movers: Mexican Peso propped up by Greenback weakness

  • MXN hit a 15-week high of 16.94 against the USD on Friday as markets sell the US Dollar off one last time before the holiday break.
  • Mexico’s November Trade Balance grew by USD 630 million versus the market forecast of USD 404 million, rebounding from October’s USD 252 million deficit.
  • November’s seasonally adjusted Mexico Trade Balance showed scant growth of USD 300K versus the previous month’s growth of USD 242 million, implying seasonal factors are boosting Mexico Trade Balance and are unlikely to last.
  • US Dollar weakness was the general market theme on Friday before a late-day pullback as investors wrap up for the holiday break.
  • The US Annualized Core Personal Consumption Expenditures (PCE) Price Index in November grew by 3.2% from the same time last year, easing back from market forecasts of 3.3% and declining further from the previous period’s 3.4% (which was also revised down from 3.5%).
  • Durable Goods Orders in November lurched higher to grow 5.4%, well over the market forecast of 2.2% and clawing back October’s -5.1% (also revised upwards from -5.4%).
  • Easing US inflation figures are keeping market hopes pinned for faster and sooner rate cuts from the Federal Reserve (Fed).
  • Mexico’s Jobless Rate figures are due next Thursday after the holiday break.

Technical Analysis: Mexican Peso sees one last bump to close out the trading week

The Mexican Peso (MXN) has captured some ground amidst broad-market US Dollar (USD) weakness on Friday, with the USD/MXN pair definitively piercing below the 17.00 handle for the first time since late August. Mid-Friday saw a US Dollar recovery, propping the USD/MXN back up into the 17.00 handle as markets wrap up the last full trading week of 2023.

Hourly candles have the USD/MXN running well away from the 200-hour Simple Moving Average (SMA) just below 17.20, and last week’s rough intraday chop has given way to smooth declines heading into the holiday break.

Daily candlesticks show the USD/MXN accelerating into multi-month lows as the pair drops through 17.00. Meanwhile, the 50-day and 200-day SMAs are set for a bearish crossover, which will chalk in a heavy technical resistance zone to cap off any bullish recoveries heading into 2024.

USD/MXN Hourly Chart

USD/MXN Daily Chart

Mexican Peso FAQs

The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.

The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall 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.

Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.

As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.

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.

Title: Breaking News: Mexican Peso Surges to Multi-Month High as US Dollar Struggles in Market Sell-Off

Mexican Peso (MXN) has made headlines in the financial world as it reached a multi-month high against the US Dollar (USD). The surprising surge in MXN comes amidst a market sell-off, where the USD is struggling to maintain its dominance. This sudden shift in currency value has left many wondering about the reasons behind it and its impact on the global economy. Let’s take a deeper dive into the factors contributing to this significant event and what it means for investors, businesses, and individuals.

Reasons Behind the MXN Surge

There are several factors at play that have contributed to the MXN’s surge. Here are the top reasons:

1. Improved Economic Outlook

One of the primary reasons behind the MXN’s rise is Mexico’s improving economic outlook. The economy had been struggling due to the pandemic, but now the country has successfully contained the virus and has started to reopen. The International Monetary Fund (IMF) projects a 5% economic growth for Mexico in 2021, which is higher than the average for Latin America. This positive economic outlook has given investors confidence, leading to an increase in demand for MXN.

2. Record-High Remittances

Mexico is highly dependent on remittances, and according to the World Bank, it ranks third globally in terms of receiving remittances. In 2020, the country saw a record-high of $40.6 billion in remittances, which was 11.4% higher than the previous year. These remittances play a crucial role in the country’s economy, and the rising trend has certainly helped strengthen MXN.

3. US Dollar’s Decline

Another significant reason for the MXN’s surge is the decline of the USD. The USD has been under pressure due to a combination of factors such as low-interest rates, increased government spending, and the effects of the ongoing pandemic. As the USD weakens, investors tend to shift towards alternative currencies, which has worked in favor of the MXN.

Impact on Businesses and Individuals

The surge of MXN to a multi-month high has wide-ranging implications for businesses and individuals, both in Mexico and beyond. Here are some of the key impacts:

1. Exchange Rates and International Trade

For businesses involved in international trade, this surge in MXN could have both positive and negative consequences. On one hand, it could make Mexican exports less competitive in the global market due to the stronger currency. On the other hand, it could make imports cheaper, which could help in reducing production costs.

2. Improved Purchasing Power for Individuals

For individuals and businesses looking to purchase goods and services in USD, the surge of MXN translates to improved purchasing power. This means that they can buy more goods or services for the same amount of money compared to before the MXN’s rise.

3. Impact on Travel and Tourism

Mexico is a popular tourist destination, and this surge in MXN could have a significant impact on the country’s travel and tourism industry. For international tourists visiting Mexico, the cost of travel and accommodations could be relatively cheaper, leading to an increase in tourism.

Practical Tips for Investors

For investors looking to capitalize on the MXN’s surge, here are some tips to keep in mind:

1. Keep an Eye on Economic Indicators

As an investor, it is crucial to keep track of economic indicators such as GDP growth, inflation, and interest rates to understand the overall health of the Mexican economy. Any significant changes in these indicators could affect the value of MXN.

2. Diversify Currency Holdings

While the MXN’s surge is certainly positive news, it is essential for investors to diversify their currency holdings to mitigate any potential risks. A diverse portfolio of currencies will ensure that any fluctuations in one currency do not significantly impact your investments.

In Conclusion

The recent surge of MXN to a multi-month high against the USD is a significant event that has caught the attention of many in the financial world. The reasons behind this development are a combination of the country’s economic outlook, record-high remittances, and the US Dollar’s decline. The impact of this surge on businesses and individuals will vary depending on their specific circumstances, but overall, it has several positive implications. As always, it is crucial for investors to stay informed and make well-informed decisions while navigating the ever-changing world of finance.

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