USD/MXN Hit 16.68, Up 0.31% on Fed’s Policy Shift

USD/MXN Hit 16.68, Up 0.31% on Fed’s Policy Shift

Key Points

  • USD/MXN is trading at 16.68, up 0.31% amid US Fed developments.
  • The Fed’s hawkish commentary strengthens the USD, raising the exchange rate.

As of Wednesday, the USD/MXN currency pair is trading at 16.68, reflecting a 0.31% increase. This change occurs during major economic shifts. Particularly, actions from the United States Federal Reserve (Fed) have deep impacts. These affect the exchange rate dynamics between the US dollar and the Mexican peso.

Fed’s Stance May Prolong 2% Inflation Target Achievement.

The release of the Federal Reserve’s monetary policy meeting minutes has provided crucial insights into the central bank’s stance. The minutes revealed a hawkish tone, with Fed officials expressing a readiness to tighten monetary policy further. According to the minutes, various participants mentioned their willingness to tighten policy further should risks to the outlook materialise and make such action appropriate.

Additionally, officials noted that achieving a sustainable 2% inflation rate might take longer than anticipated, indicating a cautious approach to any potential easing of the federal funds rate.

Hawkish Fed Drives USD Demand, Lifts USD/MXN Rate

The hawkish commentary from the Fed has significantly influenced the USD/MXN exchange rate. The US dollar has strengthened as markets anticipate prolonged higher interest rates. Fed officials have emphasised the need for certainty in reducing inflation before considering any rate cuts. This stance has increased demand for the dollar, increasing the exchange rate. The sentiment in the market is that the Fed will remain vigilant, maintaining a tight monetary policy to control inflation.

Mexican Economic Outlook and Analysts’ Predictions

On the Mexican side, the Citibanamex survey conducted in May reveals mixed expectations regarding the Banco de México (Banxico) interest rate decisions. Out of 26 analysts, most predict Banxico will lower rates at the upcoming meeting on June 27.

Meanwhile, a smaller group of eight analysts forecasts that the rate cut will occur in the second half of 2024. Inflation expectations for 2024 have been revised slightly upward from 4.17% to 4.21%, though underlying prices are expected to fall marginally from 4.10% to 4.07%.

USD/MXN Technicals: 16.60 Resistance, 16.76 Target

From a technical analysis perspective, the USD/MXN pair is currently in a downtrend but appears to have bottomed out within the 16.52/54 range. The resistance level is 16.60, with the Relative Strength Index (RSI) indicating a bullish but flat trend.

Short-term price targets include the 50-day SMA at 16.76, the 100-day SMA at 16.91, and the psychological level of 17.00, with the 200-day SMA at 17.17. On the downside, a break below 16.52 could challenge the 16.50 psychological level, with a year-to-date low of 16.25 as a critical support point.