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The Mexican Peso (MXN) is trending lower in the majority of its most heavily traded pairs on Wednesday. This is due to a combination of factors, including the decision by the International Monetary Fund (IMF) to downgrade its economic growth forecasts for Mexico in 2024-2025, as well as fading Oil prices \u2013 a key export for the country.\u00a0\u00a0<\/p>\n
The impact of stubbornly high inflation in the US and recent remarks from the Chairman of the Federal Reserve (Fed), Jerome Powell<\/a>, that suggest the Fed may not cut interest rates until September (from previous expectations of June), were further factors posited as influencing the Mexican Peso\u2019s reversal in fortunes.<\/p>\n The Mexican Peso is taking another step lower after the IMF downgraded its growth forecasts for Mexico over the next two years on Tuesday. It reduced its 2024 forecast to 2.4% from 2.7% and 1.4% in 2025 from 1.5% previously estimated.\u00a0<\/p>\n \u201cThe forecast for Mexico is revised downward on account of weaker-than-expected outcomes for end-2023 and early 2024, with a contraction in manufacturing,\u201d the IMF said in its latest World Economic Outlook report.<\/p>\n This follows similar downgrades from the Banxico in February, when it reduced its growth forecast<\/a> to 2.8% from 3.0% in 2024, as per The Wall Street Journal.\u00a0<\/p>\n The fall off in growth is anticipated as a result of lower government spending in an effort to bring down the budget deficit.\u00a0<\/p>\n \u201cMexico\u2019s Ministry of Finance expects the fiscal deficit to decrease from 5% to 2.5% of the Gross Domestic Product (GDP) next year, which would imply a cut in spending of 833.6 billion Pesos, according to the Pre-General Policy Criteria Economic 2025,\u201d says<\/a> Christian Borjon Valencia, Editor at FXStreet<\/a>.com<\/p>\n In its March meeting, the Banxico reduced interest rates from 11.25% to 11.00% due to evidence of lower inflation and growth. However, the move failed to completely reverse the Mexican Peso\u2019s long-term uptrend.\u00a0<\/p>\n Higher inflation in the US and recent comments from Fed Chairman Powell, however, may have reversed the trend for the Peso \u2013 in particular against the US Dollar.\u00a0<\/p>\n On Tuesday, Powell said<\/a>, \u201cRecent data shows a lack of further progress on inflation this year,\u201d adding, \u201cIf higher inflation persists the Fed can maintain current rate as long as needed.\u201d\u00a0<\/p>\n Higher interest rates tend to be positive for a currency as they increase foreign capital inflows. The opposite is true for lower interest rates. Given the divergence in the two country\u2019s monetary policy<\/a> stances, with Banxico cutting and the Fed holding, the Mexican Peso\u2019s long-term appreciation versus the Buck looks at risk of breaking down.<\/p>\n USD\/MXN \u2013 the value of one US Dollar in Mexican Pesos \u2013 has probably reversed its short-term downtrend.\u00a0<\/p>\n The peaks and troughs of price are rising on the 4-hour chart<\/a> used by many analysts to assess the short-term trend. This suggests the pair is now in an uptrend, favoring bulls.\u00a0<\/p>\nMexican Peso declines after IMF revises down growth<\/h2>\n
Technical Analysis: USD\/MXN reverses trend in the short-term<\/h2>\n
USD\/MXN 4-hour Chart\u00a0<\/h3>\n