others
Mexican Peso strengthens post-Fed minutes amid rate cut speculations – Crypto News
- Mexican Peso gains traction despite worse-than-expected Mexico’s Retail Sales, post Fed’s meeting minutes.
- Fed’s insistence on inflation confidence before rate adjustments impacts currency markets.
- Weak retail sales and economic contraction in Mexico may influence Banxico’s upcoming rate decision.
The Mexican Peso (MXN) extended its gains against the US Dollar (USD) as the Federal Reserve released its latest meeting minutes, which showed that Fed officials remain reluctant to cut rates too soon. Even though policymakers acknowledged that economic risks are skewed to the downside, some officials noted that inflation could stall. At the time of writing, the USD/MXN exchanges hands at 17.04, down 0.06%.
The minutes showed the Fed noted they did not see it appropriate to lower interest rates until they gained “greater confidence” in inflation moving sustainably towards 2%. While they said the risks of achieving both mandates, they remained “highly attentive” to inflationary risks.
Earlier, Mexico’s National Statistics Agency revealed that Retail Sales plunged in December, in both monthly and annual figures, an indication that consumers are feeling the pain of higher interest rates set by the Bank of Mexico (Banxico). Today’s data summed to Monday’s Indicator of Economic Activity (IOAE), suggesting the economy shrank -0.7% MoM in January, which could weigh on Banxico’s decision to lower rates at the March meeting.
Daily digest market movers: Mexican Peso fluctuates between minimal gains/losses ahead of Fed Minutes
- Mexico’s Retail Sales dropped -0.9% MoM, below estimates of 0.2% expansion. Yearly figures plummeted -0.2% vs. the forecast of a 2.5% increase.
- The Mexican currency could depreciate further if the Mexican government fails to resolve the steel and aluminum dispute with the United States. US Trade Representative Katherine Tai warned the US could reimpose tariffs on the aforementioned commodities.
- Mexico’s economic schedule will feature the release of the Gross Domestic Product (GDP) and February’s Mid-Month inflation data on Thursday.
- GDP is projected to have grown 0.1% in Q4 2023 and 2.4% YoY.
- Mid-month underlying inflation for February is foreseen cooling from 4.78% to 4.67 YoY, while headline inflation is projected to drop from 4.9% to 4.7%.
- On Tuesday, the Conference Board (CB) revealed its Leading Economic Index (LEI), which no longer signals an upcoming recession in the US.
- Recently, Richmond Fed President Thomas Barkin said the latest inflation reports were “less good,” adding the US has “a ways to go” to achieve a soft landing.
- Traders will get further cues from US S&P Global PMIs, Initial Jobless Claims data and the Chicago Fed National Activity Index. The latter is usually a prelude to the Institute for Supply Management’s (ISM) Manufacturing PMI.
- US economic data related to price pressures should greatly influence Federal Reserve officials. Although opening the door to easing policy, Fed officials have expressed numerous times that they will not rush rate cuts.
- Fed’s Bostic said patience is required, and he foresees two rate cuts, which could begin in the summer if the data justifies it. Fed’s Daly said, “We will need to resist the temptation to act quickly when patience is needed and be prepared to respond agilely as the economy evolves.”
- Market players are expecting the first rate cut by the Federal Reserve at the June monetary policy meeting as they have trimmed odds for March and May.
Technical analysis: Mexican Peso prints minimal losses as USD/MXN breaks above 17.05
The USD/MXN remains in consolidation, at around 17.05, awaiting a fresh catalyst. If buyers regain the 50-day Simple Moving Average (SMA) at 17.07, the pair could rally toward the 200-day SMA at 17.28. A breach of the latter will expose the 100-day SMA at 17.38, ahead of the 17.50 mark.
On the other hand, if sellers’ step in and cap USD/MXN’s upside, they need to push prices below the 17.00 figure. Once cleared, the next support would be the current year-to-date (YTD) low of 16.78, followed by the 2023 low of 16.62.
USD/MXN Price Action – Daily Chart
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US 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 may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy 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 involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
