Mexican Peso tumbles as inflation and weak growth supports Banxico rate cuts

• Mexican Peso slips as monetary policy divergence with Fed fuels further upside.
• USD/MXN climbs 0.14% to 20.43 as Banxico signals additional 50-bps rate cuts.
• Mexico's Q4 GDP contracts by 0.6%, raising recession concerns.
• Traders eye Mexico's Current Account, Balance of Trade, and jobs data this week.

The Mexican Peso (MXN) slipped against the US Dollar (US) for the second consecutive day after inflation data for the first half of February rose as expected, yet justified Banco de Mexico's (Banxico) latest 50 basis points (bps) rate cut. At the time of writing, USD/MXN trades at 20.43, up 0.14%.

Mexico's inflation report revealed that Banxico could continue to recalibrate monetary policy. According to February's 6 meeting minutes, Banxico is expected to continue reducing rates at a 50-bps size.

Last week's Gross Domestic Product (GDP) figures confirmed that Mexico's economy is closing to a technical recession. GDP shrank by -0.6% QoQ in the fourth quarter of 2024, down from a 1.1% expansion and matching estimates of a Reuters poll. This and monetary policy divergence, with Banxico lowering rates and the Federal Reserve (Fed) keeping them unchanged, suggests further upside in the USD/MXN pair.

Ahead this week, Mexico's economic docket will feature the Current Account, Balance of trade, and jobs data.

Daily digest market movers: Mexican Peso depreciates as inflation data justifies Banxico's dovish tilt

• Mid-month headline inflation in February rose by 0.15% as expected. On annual terms, it jumped 3.74%, as expected by most economists.
• Core inflation for the same period expanded by 0.27% MoM, slightly above estimates of 0.24%. Yearly, underlying prices increased by 3.63%, up from 3.61%.
• Last week, US President Donald Trump reiterated tariffs of 25% on cars, effective on April 2.
• The swaps markets hint that the Federal Reserve might cut rates 25 basis points twice in 2025 via data from the Chicago Board of Trade (CBOT). Traders had priced in 51 bps of easing.
• Trade disputes between the US and Mexico remain front and center. Although the countries found common ground previously, USD/MXN traders should know that there is a 30-day pause and that tensions could arise toward the end of February.

USD/MXN technical outlook: Mexican Peso drops as USD/MXN challenges 50-day SMA

The trend remains tilted to the upside, with the USD/MXN pair testing the 50-day Simple Moving Average (SMA) at 20.44 at the time of writing. Momentum, as depicted by the Relative Strength Index (RSI), suggests that buyers are gathering steam. Therefore, if USD/MXN climbs past 20.50, the exotic pair would be poised to challenge the January 17 20.93 high, followed by 21.00 and the year-to-date (YTD) high of 21.28.

Conversely, if sellers outweigh buyers, USD/MXN could test the 100-day SMA at 20.24. On further weakness, the pair might surpass that dynamic support and head towards the 20.00 figure.