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The Mexican Peso (MXN) makes small gains\u00a0in its major pairs on Thursday, ahead of the Bank of Mexico (Banxico) September policy meeting scheduled for 19:00 GMT.\u00a0 Given changes in interest rates can have the high impact on exchange rates, this is likely to be the most important event for the currency this week.<\/p>\n
The Mexican Peso will be in the spotlight today as the Banxico meet to discuss monetary policy and weigh a cut to its official interest rate.\u00a0<\/p>\n
A reduction in interest rates normally has a depreciating effect on a country\u2019s currency because it makes it a less attractive place for investors to park their capital.\u00a0<\/p>\n
The current consensus amongst economists and analysts is that the central bank will opt for a 25 basis point (bps) cut, or 0.25% reduction, in its official cash rate, bringing it down to 10.50% from 10.75%.\u00a0<\/p>\n
In a recent survey of 25 economists by Bloomberg, 20 expected a 25 bps cut, one expected no-change, and four expected a larger 50 bps cut (0.50%).\u00a0<\/p>\n
The survey was held before Mexican inflation data released on Tuesday showed headline inflation (INPC) over the last 12 months fell to 4.66% in Mexico in mid-September, and core inflation (Subyacente) to 3.95%, according to the Instituto Nacional de Estad\u00edstica Geograf\u00eda<\/a> (INEGI). The slight easing in inflation may have increased the odds of a larger 50 bps cut.\u00a0\u00a0<\/p>\n That said, data released on Monday showed buoyant Retail Sales and a greater-than-expected rise in Mexico\u2019s economic activity in July, which would argue for a more moderate reduction in borrowing costs in order to avoid overheating.\u00a0<\/p>\n At the August meeting, Banxico decided to cut interest rates by 0.25%. But the decision was a close call. Only three members voted for the cut versus two who voted to keep interest rates unchanged. The fact it was not unanimous increases the chances of a smaller 25 bps cut over a larger 50 bps reduction.\u00a0<\/p>\n \u201cOne might wonder whether Banxico will also start cutting rates by 50 basis points,\u201d comments Michael Pfister, FX Analyst at Commerzbank, in a note on Thursday. \u201cHowever, this seems unlikely, at least for the time being. The reasons for this are the aforementioned stubborn inflation, but also the fact that the data from the real economy, while pointing to a slowdown, do not point to a significant economic downturn. In short, Banxico is likely to cut rates by another 25 basis points today,\u201d adds the analyst.\u00a0\u00a0<\/p>\n USD\/MXN pushes higher within its rising channel, continuing the uptrend bias of recent months. Overall, it is in a short, medium and long-term uptrend. Given the theory that \u201cthe trend is your friend\u201d, it\u2019s more likely than not to continue higher.<\/p>\nTechnical Analysis: USD\/MXN starts rising up within channel again<\/h2>\n
USD\/MXN Daily Chart\u00a0<\/h3>\n