Mexican Peso treads water ahead of Fed's decision

• Mexican Peso stable in cautious markets, awaiting US Federal Reserve decision.
• Mexico's labor market gains contrast with US tariff concerns, placing subtle pressure on Peso
• Banxico's Deputy Governor hints at further easing despite potential US trade challenges.

The Mexican Peso (MXN) remains subdued against the US Dollar (USD) during the North American session as investors wait for the United States (US) Federal Reserve (Fed) monetary policy decision. Consequently, price action is constrained, as seen by USD/MXN trading at 20.55, up by a minimal 0.06% and virtually unchanged.

Data from Mexico revealed that the December Unemployment Rate dipped, indicating the labor market's strength. Recently, Banco de Mexico (Banxico) Deputy Governor Omar Mejia Castelazo said on Banorte's podcast that Banxico has enough margin to carry out a "process of calibration" at upcoming monetary policy meetings. He hinted that the central bank will likely continue to ease policy.

When asked about challenges from Trump's trade policies in the US, Mejia added that Mexico had "solid macro-economic fundamentals."

Despite this, the Mexican currency has been pressured during the week, depreciating over 1.89% on Monday against the Greenback due to  President Trump's trade policy threats to Colombia. At the same time, the White House reiterated that 25% tariffs to Mexico would be applied on February 1, according to Karoline Leavitt, the Press Secretary.

Regarding this, David A. Meier, an economist at Julius Baer, ​​said: "Our view is that these threats are intended to put pressure on Mexico and Canada on drug and immigration issues, as well as to reopen the USMCA negotiations before 2026."

Meier warned of the potential economic consequences if the threats materialize. He added that Mexican exports would reduce and remittances would take a hit, which opens the door for further depreciation of the Mexican Peso.

In addition, Mexico's economic docket will feature the release of preliminary Q4 2024 Gross Domestic Product (GDP) figures.

Daily digest market movers: Mexican Peso hovers near 20.50 after jobs report

• The Institutio Nacional de Estadistica Geografia e Informatica (INEGI) revealed that Mexico's Unemployment Rate in December was 2.4%, down from 2.6% in November. Seasonally adjusted figures were 2.6%.
• According to Reuters, Mexico President Claudia Sheinbaum said she "doesn't believe the United States will impose tariffs on Feb. 1."
• A Reuters poll revealed that private economists estimate Mexico's GDP to contract -0.2% QoQ from an expansion of 1.1% in Q4. On an annual basis, GDP is foreseen to edge lower from 1.6% to 1.2%.
• Citi revealed its Expectations Survey, in which Mexican private economists revised GDP figures for 2025 downward to 1%. In headline figures, inflation is foreseen at 3.91%, and core prices are projected at 3.68%. Both figures are within Banxico's 3% plus or minus 1%.
• The USD/MXN exchange rate would likely end in 2025 at around 20.95.
• Banxico is expected to lower rates by 25 basis points (bps) from 10.00% to 9.75%, though some analysts expect a 50-bps cut at the February 6 meeting.
• Money market futures have priced in 50 bps of Fed rate cuts in 2025, according to CME FedWatch Tool data.

USD/MXN technical outlook: Mexican Peso surges as USD/MXN drops to 20.50

The USD/MXN consolidates near the 20.50 figure for the second straight day, with traders reluctant to push prices above the year-to-date (YTD) high of 20.90. Since November, the exotic pair has remained within the 20.20 - 20.90 range, capped on the downside by the 50 and 100-day Simple Moving Averages (SMAs), each at 20.38 and 20.07.

For a bullish continuation, buyers must clear the YTD peak and the 21.00 figure, which could open the door to test the March 8, 2022, daily high of 21.46, followed by the 22.00 psychological level.

On the other hand, if sellers push prices below the 100-day SMA, the next support would be 20.00, followed by the October 18, 2024 swing low of 19.64.