Mexican Peso holds its ground against US Dollar post-US PPI data – Crypto News – Crypto News
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USDMXN rises to highest level in three days near 19.50 on a stronger Dollar USDMXN rises to highest level in three days near 19.50 on a stronger Dollar

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Mexican Peso holds its ground against US Dollar post-US PPI data – Crypto News

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  • Mexican Peso trims some weekly losses as USD/MXN stays virtually unchanged.
  • Mexico’s Industrial Production contracts, underscoring economic challenges, while US producer prices suggest softening inflation.
  • Fed officials’ comments on inflation and monetary policy decisions reflect a cautious optimism.

The Mexican Peso depreciated modestly against the US Dollar for the third straight trading session on Thursday, following a red-hot consumer inflation report on Wednesday. Further economic data from Mexico and the United States (US) keeps the exotic pair within familiar levels, though the downtrend remains intact. The USD/MXN trades at 16.43, virtually unchanged.

Mexico’s economic docket featured the release of Industrial Production for February. The monthly reading missed estimates and contracted. On a yearly basis, data expanded below estimates but surpassed January’s reading.

Across the border, the release of prices paid by producers showed that inflation cooled a little but remains stickier than expected on the annual core reading. Monthly readings showed that the disinflation process continues to show success.

In the meantime, Federal Reserve (Fed) officials crossed newswires. The  New York Fed’s Williams and Richmond Fed’s Barkin mentioned that recent data was disappointing, while the Boston Fed’s Collins added that recent data argues against the imminent need to change rates.

Daily digest market movers: Mexican Peso shrugs off hot US inflation data

  • Mexico’s Industrial Production edged lower in February from the previous month and shrank -0.1% MoM, below estimates of 0.3% expansion. On a yearly basis, Industrial Production rose by 3.3% compared to the last reading, but forecasts were missed by 3.5%.
  • This data, combined with the recent inflation report, which is below estimates, justified the Bank of Mexico’s (Banxico) March rate cut. However, not everything was positive news as the yearly CPI exceeded expectations.
  • The US Producer Price Index (PPI) rose by 0.2% MoM in March, below the previous month’s reading. The core PPI clocked the same reading of 0.2% MoM, which is below estimates and February’s reading.
  • For the twelve months to March, the PPI increased by 2.1%, exceeding February’s data. The core PPI printed above estimates, and the previous reading, at 2.4%, which was above estimates of 2.3% and February’s 2.1%.
  • Initial Jobless Claims for the week ending April 6 arrived at 211K, below estimates of 215K and the prior’s reading of 222K.
  • Thursday’s data, along with Wednesday’s US inflation report, prompted traders to price in two rate cuts by the Federal Reserve in 2024, according to the Chicago Board of Trade (CBOT). The December 2024 fed funds futures contract depicts it ending the year at 4.975%.
  • Federal Reserve officials led by New York President John Williams and Richmond’s Thomas Barkin expressed their disappointment with recent inflation data. Both expressed there’s no need to change policy, given the actual scenario of stickier inflation and robust economic growth.

Technical analysis: Mexican Peso opposes resistance, caps the USD/MXN advance below 16.50

The USD/MXN daily chart depicts the pair consolidating near 16.40, with buyers still unable to crack the current week’s high achieved on Wednesday at 16.52. Once that area is breached, the next supply zone to challenge would be the 16.62 mark, followed by the 50-day Simple Moving Average (SMA) at 16.85 and the 100-day SMA at 16.99.

Failure at 16.50 and the USD/MXN could tumble to October’s 2015 low of 16.32 before retesting the year-to-date (YTD) low of 16.25.

Inflation FAQs

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

 

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