- The Mexican peso softens while the prudent risk of the risk is strengthened before the Fed's decision.
- The geopolitical strains between Mexico and the United States linger, although the market response remains stifled.
- USD / MXN supported by firmer American yields and repair of the prudent Fed.
Mexican peso stands while the markets remain concentrated on the Fed
The Mexican Peso (MXN) is negotiating on Tuesday decreasing compared to the US dollar (USD) while the markets are preparing on Wednesday for the monetary policy decision of the Federal Reserve (Fed).
USD / MXN increased by 0.26% compared to the day, negotiating nearly 19.75 when writing the editorial's time, after exceeding a key trend line and extending the gains on Monday.
This decision reflects a change in the feeling of risks, as recent data from the United States has disputed expectations for early interest rate reductions. Investors repositioning before the comments of the president of the Fed, Jerome Powell, the demand for the US dollar has strengthened while the currencies in peso and in other emerging currencies (EM) have been late.
Economic resilience in the United States tempers the lower prejudices for the greenback
The latest higher movement in USD / MXN was motivated by mixed signals from the American services sector. Monday, the Institute for Supply Management (ISM) Services Purchase Managers Index (PMI) surprised the increase, passing to 51.6 in April, above the consensus of 50.4 and the reading of 50.8 in the previous month, suggesting continuous resilience in the commercial activity of the services sector.
On the other hand, the S&P Global US PMI Services fell to 50.8, missing the preliminary estimate of 51.4 and marking the slowest rhythm of expansion in two years. The divergence indicates an unequal economic recovery, the largest companies probably operated better than small businesses exposed at the international level.
For the markets, the ISM report has brought more weight, helping to raise American cash flows modestly and to refocus attention on the path of monetary policy of the federal reserve. Higher yields increase the attraction of the US dollar, while risks sensitive to risks and Mexican peso tend to underperform.
Meanwhile, political tensions between Mexico and the United States remain in the background.
During the weekend, Mexican President Claudia Sheinbaum publicly rejected an offer from US President Donald Trump to deploy American troops in Mexico to fight drug cartels. Sheinbaum has reaffirmed the sovereignty of Mexico, declaring: “We can work together, but you on your territory and us in ours.”
Although development has drawn diplomatic attention, the markets treated it as a fundamental risk with a limited direct impact on USD / MXN prices.
Mexican peso daily digest: the FOMC occupies the front of the stage
- The Federal Open Market Committee (FOMC) should maintain the stable reference interest rate in the range of 4.25% to 4.50% on Wednesday. However, the market will concentrate in the tone of the press conference of President Jerome Powell for any signal at the time of the rate drops.
- According to the CME Fedwatch tool, traders are prices in a drop in prices of 25 basic points (BPS) in July, although expectations have been slightly released after the ISM beat on Monday. A dominant tone of Powell could weaken the US dollar and lift the Peso.
- The Bank of Mexico (Banxico) should deliver 50 base points of 50 points of view at its next meeting on May 15. The Mexican gross domestic product (GDP) increased by 0.2%, justly avoiding the recession, while inflation continues to cool. Banxico has maintained a cautious approach and data focused on.
- The recent American prices on key Mexican exports – including metals and cars – added pressure on the outside sector, weighing on commercial and investment perspectives.
- Uncertainty surrounding global demand, raw material prices and future trade or immigration policy in the United States continues to classify the prospects of market assets emerge as Mexican Peso.
USD / MXN bulls take the lead
From a technical point of view, the USD / MXN broke over resistance to the descending trend line from the April summit of 21.08, indicating a potential shift in short-term biases.
The pair is now negotiated above the level of Fibonacci trace of 14.14% of the April move, providing support at 19.698.
The pair is currently negotiating at the highest level in almost two weeks, the simple 10 -day mobile average (SMA) now provides an additional support for 19.611.
Momentum indicators improve, the relative resistance index (RSI) approaching the neutral level of 50, suggesting that the downward momentum has blurred. The resistance is now up to the 19.80 psychological barrier, followed by the Fibonacci retracement of 23.6% of the April move to 19.85.
Learning, the trend line recovered and the 19.59 to 19.60 area offer initial support, with stronger support seen at the lowest April from 19.47.
Daily graphic USD / MXN
FAQ Nourished
In the United States, monetary policy is shaped by the Federal Reserve (Fed). The Fed has two mandates: reach price stability and promote full employment. Its main tool to achieve these objectives is to adjust interest rates. When prices are increasing too quickly and inflation is greater than the 2% target of the Fed, it increases interest rates, increasing borrowing costs throughout the economy. The result is a stronger US dollar (USD) because it makes the United States a more attractive place for international investors to park their money. When inflation falls below 2% or the unemployment rate is too high, the Fed can reduce interest rates to encourage the loan, which weighs on the greenback.
The Federal Reserve (Fed) organizes eight political meetings per year, where the Federal Open Market Committee (FOMC) assesses the economic conditions and makes monetary policy decisions. The FOMC is assisted by twelve officials of the Fed – the seven members of the Council of Governors, the president of the Federal Reserve Bank of New York and four of the eleven presidents of the remaining regional reserve bank, who have a period of one year on a rotating basis.
In extreme situations, the federal reserve can use a policy called quantitative relaxation (QE). QE is the process by which the Fed considerably increases the credit flow in a blocked financial system. It is a non -standard political measure used during crises or when inflation is extremely low. It was the Fed's weapon of choice during the great financial crisis in 2008. It implies the Fed Print more dollars and use them to buy high -level bonds from financial institutions. QE generally weakens the US dollar.
The quantitative tightening (QT) is the opposite process of the QE, by which the federal reserve ceases to buy obligations from financial institutions and does not reinvest the principal of the obligations it holds at maturity, to buy new obligations. It is generally positive for the value of the US dollar.
