Mexican Peso rises as US consumer turns pessimistic, Banxico cut eyed

• Mexican Peso strengthens after US Consumer Confidence deteriorated.
• Mexico's inflation fell below estimates in September, with core inflation easing under 5%, boosting expectations for a 25 bps rate cut by Banxico on Thursday.
• Analysts expect Banxico to lower rates from 10.75% to 10.50%, citing falling inflation, weaker economic activity and Fed easing.

The Mexican Peso advanced against the US Dollar during the North American session after the Conference Board (CB) revealed that Consumer Confidence in the United States (US) deteriorated. Meanwhile, Mexican inflation dipped below estimates ahead of Thursday's Bank of Mexico (Banxico) monetary policy meeting. At the time of writing, the USD/MXN trades at 19.36, dropping over 0.28%.

Mexico's inflation in the first half of September dipped in MoM and YoY figures, according to the Instituto Nacional de Estadistica Geografia e Informatica (INEGI). Core numbers edged lower after being above the 5% threshold and improved compared to the previous reading.

According to Reuters, Banxico is expected to lower interest rates by 25 basis points (bps) on September 26 from 10.75% to 10.50%.

Analysts at Capital Economics quoted by Reuters noted "The fall in inflation, combined with the weakness of economic activity and the fact that the US Fed is now easing monetary policy too, means that Banxico is all but certain to deliver another 25-basis-point cut.".

Across the border, Consumer Confidence deteriorated in September, hitting its lowest level since August 2021 due to worries about the labor market and the broad economic outlook.

Meanwhile, Fed Governor Michelle Bowman said that risks to inflation are still prominent, adding that she favors "a measured pace of cuts" to avoid reigniting inflation.

Daily digest market movers: Mexican Peso on the front foot as inflation dips

• Mid-month inflation in September came to 0.09% MoM, below estimates of 0.15%. In the 12 months to September, it expanded by 4.66%, below forecasts of 4.73% and the previous reading of 5.16%.
• Underlying inflation for the same period increased slightly from 0.1% to 0.21% MoM, but it was beneath forecasts of 0.23%. Yearly, core prices dropped from 3.98% to 3.95%, lower than the consensus.
• Mexico's Economic Activity expanded in July, while Retail Sales contracted for the third straight month but improved compared to June's reading.
• Banxico is expected to lower borrowing costs by 175 bps toward the end of 2025, according to the swaps markets.
• CB Consumer Confidence in September dropped from 105.6 to 98.7, missing the 103.8 estimated by analysts.
• Dana Peterson, chief economist at the Conference Board, said, "The deterioration across the Index's main components likely reflected consumers concerns about the labor market and reactions to fewer hours, slower payroll increases, fewer job openings."
• Market participants had fully priced in a 100% chance of a 25 bps rate cut by the Fed. However, the odds for a 50 bps of easing are 56.2%, according to the CME FedWatch Tool date.

USD/MXN technical analysis: Mexican Peso recovers some ground as USD/MXN falls below 19.40

The USD/MXN remains intact despite consolidating at around the 19.00-19.50 range for the seventh consecutive day. Investors seem to be waiting for Banxico's decision, though an "ascending wedge" is forming, implying further downside.

The Relative Strength Index (RSI) suggests that sellers gather momentum as the RSI punches below its neutral line. Therefore, the path of least resistance is skewed to the downside.

If USD/MXN tumbles below the September 23 low of 19.29, it will expose the confluence of the 50-day Simple Moving Average (SMA) and the September 18 low near 19.08 to 19.06.

Conversely, if the USD/MXN remains above 19.30, the next resistance will be 19.50, followed by the August 6 high at 19.61. Once cleared, the 20.00 level will follow, followed by the year-to-date (YTD) peak at 20.22.