Select Language

Mexican Peso rebounds slightly after four-day decline on Trump tariff fears

Breaking news

Mexican Peso rebounds slightly after four-day decline on Trump tariff fears

  • X
  • facebook
  • LINE
  • RSS

  • X
  • facebook
  • LINE
  • RSS
New update 2024.10.31 18:00
Mexican Peso rebounds slightly after four-day decline on Trump tariff fears

update 2024.10.31 18:00

  • The Mexican Peso rebounds slightly, but struggles to recover recent losses despite higher-than-expected economic growth in Q3. 
  • Technical trend-following and the threat of a Trump victory is probably a factor weighing on the Peso as polls show a close race. 
  • USD/MXN continues unfolding a bullish 'abc' pattern. 

The Mexican Peso (MXN) trades mixed in its key pairs - USD/MXN, EUR/MXN and GBP/MXN - on Thursday after weakening for four days running. The continuation lower comes despite a slight improvement in Mexican fundamentals as technical traders ride the Peso's downtrend. 

Mexican Peso struggles as US presidential election draws to a close

The Mexican Peso's broad weakness could be attributed to the continuing high odds of former President Donald Trump winning the US presidential election on November 5 given his promise to place high tariffs on Mexican imports. In addition, Trump's preference for lowering taxes despite a rising US debt pile could also potentially lead to higher US Treasury yields and boost the US Dollar (USD), directly impacting USD/MXN. 

The election model on polling website FiveThirtyEight gives Trump a 52% chance of winning versus Vice President Kamala Harris' 48%. Betting website OddsChecker offers fractional odds of 11/18 (or 62.1%) for a Trump win against 28/17 (or 37.8%) for a Kamala Harris victory. The latest opinion polls, however, still place Harris marginally in the lead with 48.1% for the Democrat nominee versus 46.7% for the Republican. 

The direct negative impact of a Trump victory on Mexico might be ameliorated, however, by the reality of modern trade between the countries. US, Mexican and Canadian supply chains and economic ecosystems are now intertwined due to three decades of free trade agreements, Mexican imported goods are actually often composed of an amalgam of the three country's components so tariffs would harm the US as much as Mexico.

Mexican Growth in Q3 beats estimates

The latest macroeconomic figures, meanwhile, offered some relief to the Peso but not enough to push back the tide. Mexican Gross Domestic Product (GDP) growth came out at 1.5% YoY in Q3,  beating estimates of 1.2% but below the 2.1% registered in Q2, according to The Instituto Nacional de Estadistica Geografia e Informatica (INEGI). This follows 1.5% growth In Q1.

The Q3 result was exactly in line with the estimates of the International Monetary Fund (IMF), which downgraded its forecasts for Mexican economic growth by 1.5% for 2024. 

On a quarterly basis, Mexican GDP rose by 1.0% QoQ, beating estimates of a 0.8% expansion and the previous quarter's 0.2% increase. 

The growth was broad-based and a positive development, however, it would not "preclude another rate cut in November" from the Bank of Mexico (Banxico), according to Kimberley Sperrfechter, Emerging Markets Economist at London-based advisory service Capital Economics. A cut to Mexico's relatively attractive 10.50% base interest rate would attract less foreign capital inflows, pressuring the Peso lower.

"We still think the conditions are currently in place for Banxico to press ahead with another interest rate cut at its November meeting. But a lot will depend on the outcome of the US election. A Trump victory - and higher US Treasury yields and a stronger Dollar - would probably prompt Banxico to halt," said Sperrfechter in a note. 

Technical Analysis: USD/MXN extends C wave of bullish pattern

USD/MXN continues unfolding a leg higher, probably the "c wave" of a bullish "abc" pattern, which began at the October 14 swing low. 

Wave c will probably reach the Fibonacci 61.8% of the length of wave "a", giving an upside target of 20.29. 

USD/MXN Daily Chart 

USD/MXN is probably in an uptrend on a short, medium and long-term basis and is trading in a rising channel. Given the technical dictum "the trend is your friend," the odds favor a continuation higher.

The original break above 19.83 (October 1 high) already confirmed a move up, with a target in the vicinity of the September 10 high at 20.13, which has now been met.

Mexican Peso FAQs

The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country's central bank's policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring - or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries - is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.

The main objective of Mexico's central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.

Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.

As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.

 


Date

Created

 : 2024.10.31

Update

Last updated

 : 2024.10.31

Related articles


Show more

FXStreet

Financial media

arrow
FXStreet

FXStreet is a forex information website, delivering market analysis and news articles 24/7.
It features a number of articles contributed by well-known analysts, in addition to the ones by its editorial team.
Founded in 2000 by Francesc Riverola, a Spanish economist, it has grown to become a world-renowned information website.

Was this article helpful?

We hope you find this article useful. Any comments or suggestions will be greatly appreciated.  
We are also looking for writers with extensive experience in forex and crypto to join us.

please contact us at [email protected].

Thank you for your feedback.
Thank you for your feedback.

Most viewed

USD mixed to firmer ahead of jobs - Scotiabank

The US Dollar (USD) is tracking a little higher ahead of the US jobs data at 8.30ET.
New
update2024.11.01 20:32

Silver Price Forecast: XAG/USD edges higher but remains on backfoot with US NFP in focus

Silver price (XAG/USD) adds little gains in European trading hours on Friday after plunging to near $32.50 on Thursday.
New
update2024.11.01 20:22

Mexican Peso edges higher, supported by resilient Q3 growth

The Mexican Peso (MXN) edges higher across its key pairs on Friday, continuing the recovery of the previous day, in part supported by the release of higher-than-expected Mexican Gross Domestic Product (GDP) growth data, which showed a 1.5% rise in the third quarter.
New
update2024.11.01 20:18

USD/JPY bounces up and approaches 153.00 with US employment data on focus

The positive impact of Ueda's Hawkish rhetoric after the BoJ's decision on Thursday has waned and the Yen is losing ground with the US Dollar firming up ahead of the US employment report.
New
update2024.11.01 20:13

GBP: Market turmoil continues - Commerzbank

After the market sent out the first warning signs of the new UK budget on Wednesday, it continued seamlessly yesterday, with UK government bond yields rising sharply and the pound depreciating.
New
update2024.11.01 19:46

USD/CNH: To encounter solid support at 7.1000 - UOB Group

USD could drift lower, but any decline is likely part of a lower trading range of 7.1150/7.1400.
New
update2024.11.01 19:43

EUR: More on the recent EUR recovery - Commerzbank

If you look at the G10 exchange rate movements since October 24 (since the publication of the euro area PMIs), it is striking that, on the one hand, the Euro has been by far the best-performing currency, but on the other hand, it has been the currency that contributed least to the volatility of G10 exchange rates, Commerzbank's Head of FX and Commodity Research Ulrich Leuchtmann notes.
New
update2024.11.01 19:39

USD/JPY: Enough momentum to threaten the major support at 151.05 - UOB Group

The US Dollar (USD) could drop further, but it does seem to have enough momentum to threaten the major support at 151.05.
New
update2024.11.01 19:35

US: A shift towards Donald Trump in the last few weeks - Commerzbank

The US Dollar (USD) has been pretty strong over the past four weeks, even if it has slowed down a bit in the last few days, Commerzbank's FX analyst Volkmar Baur notes.
New
update2024.11.01 19:32

USD/CHF aims to break above 0.8700 as Swiss Inflation softens further

The USD/CHF pair strives to break above the key resistance of 0.8700 in Friday's European session.
New
update2024.11.01 19:30

Disclaimer:arw

All information and content provided on this website is provided for informational purposes only and is not intended to solicit any investment. Although all efforts are made in order to ensure that the information is correct, no guarantee is provided for the accuracy of any content on this website. Any decision made shall be the responsibility of the investor and Myforex does not take any responsibility whatsoever regarding the use of any information provided herein.

The content provided on this website belongs to Myforex and, where stated, the relevant licensors. All rights are reserved by Myforex and the relevant licensors, and no content of this website, whether in full or in part, shall be copied or displayed elsewhere without the explicit written permission of the relevant copyright holder. If you wish to use any part of the content provided on this website, please ensure that you contact Myforex.

  • Facebook
  • Twitter
  • LINE

Myforex uses cookies to improve the convenience and functionality of this website. This website may include cookies not only by us but also by third parties (advertisers, log analysts, etc.) for the purpose of tracking the activities of users. Cookie policy

I agree
share
Share
Cancel