Mexican Peso steadies ahead of Banxico's rate decision amid hot US inflation data

• Mexican Peso consolidates as traders anticipate a 25-basis-point cut from Banxico.
• US inflation data hints at halted disinflation, potentially influencing Fed's future decisions.
• Federal Reserve officials continue to remain cautious regarding December's meeting.

The Mexican Peso wavers against the US Dollar on Thursday after snapping three days of losses on Wednesday. Traders await the Bank of Mexico (Banxico) monetary policy decision. Along with solid data from the US hinting that disinflation has halted, this capped the Peso's recovery. The USD/MXN trades at 20.50, virtually unchanged.

Market participants await Banxico's decision, though the majority have priced in a 25-basis-point (bps) rate cut from 10.50% to 10.25%. The decision will be announced at 19:00 GMT, and the statement is expected to provide reasons behind the board's decision and forward guidance.

Nevertheless, the latest inflation reading failed to justify Mexico's central bank decision, as the headline Consumer Price Index (CPI) rose to 4.76% YoY. However, the core CPI has fallen to 3.80%, down for the tenth consecutive month since the beginning of 2024.

It would be interesting if the decision were unanimous after Deputy Governor Jonathan Heath voted to hold rates unchanged at the September 26 meeting. Most of the Governing Council adopted a dovish stance, justifying their decision on core prices moving toward the bank's 3% goal, but mainly on the economy showing signs of weakness.

The US Bureau of Labor Statistics revealed that prices paid by producers topped estimates in core and headline figures. At the same time, the number of Americans filing for unemployment claims dipped below estimates and the previous week's reading for the week ending November 9.

In the meantime, the Federal Reserve (Fed) parade continued. Fed Governor Adriana Kugler stated the Fed must be mindful of both inflation and employment mandates. Later, Richmond Fed President Thomas Barkin said the US central bank has made progress on inflation, but needs to continue.

According to CME FedWatch Tool data, odds for a rate cut decreased from 82% a day ago to 78% on Thursday, post PPI data.

Meanwhile, Minneapolis Fed President Neel Kashkari stated the Fed would need additional rate cuts, adding, "I think inflation is heading in the right direction and have confidence in that."

Ahead this week, Mexico's economic docket will feature the Banxico policy decision. On the US front, Fed speakers and Retail Sales will help dictate the direction of the USD/MXN pair.

Daily digest market movers: Mexican Peso steadies against US Dollar

• The USD/MXN hovers around 20.50 ahead of Banxico's decision.
• The US Dollar Index (DXY), which tracks the performance of the Greenback against six peers, holds to minimal gains of 0.08% at 106.56 after refreshing yearly highs of 107.06.
• The Producer Price Index (PPI) in the US exceeded estimates. Headline PPI rose by 2.4% YoY, exceeding forecasts of 2.3%, up from 1.9% in September. Core PPI, which usually impacts the calculation of the core Personal Consumption Expenditures (PCE) Price Index, expanded by 3.1%YoY, up from 2.9% and above projections of 3%.
• Initial Jobless Claims for the week ending November 9, were 217K, down from prior 221K a week earlier and below forecasts of 223K.
• Data from the Chicago Board of Trade, via the December fed funds rate futures contract, shows investors estimate 25 bps of Fed easing by the end of 2024.

USD/MXN technical outlook: Mexican Peso counterattacks as USD/MXN hovers around 20.50

The USD/MXN pair remained upwardly biased, fluctuating around the psychological 20.50 figure. Although prices had consolidated during the last three straight days, bulls are in charge unless sellers push the exchange rate below 20.00, followed by a drop below the 50-day Simple Moving Average (SMA) at 19.74.

Oscillators like the Relative Strength Index (RSI) is bullish, suggesting that further upside in the USD/MXN is seen.

Therefore, the USD/MXN's first resistance would be the current week's peak at 20.69. Once surpassed, the year-to-date (YTD) high of 20.80 emerges as the next ceiling level before testing 21.00. A breach of the latter will expose the March 8, 2022, peak at 21.46.