Mexican Peso strengthens as US CPI cools

• Mexican Peso drives USD/MXN towards the 20.00 figure.
• Tariff uncertainties persist but yield advantage keeps Peso attractive
• US CPI data softer than expected, raising bets on Fed rate cuts and boosting MXN appeal.
• Mexico's Finance Minister acknowledges economic slowdown amid trade tensions; Industrial data eyed.

The Mexican Peso (MXN) rallies against the US Dollar (USD) on Wednesday as the latest inflation report in the United States (US) could force the Federal Reserve (Fed) to lower borrowing costs, hence widening the interest rate differential between Mexico and the US. At the time of writing, the USD/MXN pair trades at 20.19, down 0.35%.

Mexico's economic docket remains absent, with traders eyeing the release of Industrial Production figures. Nevertheless, data has taken a backseat as US trade policies drive the financial markets.

Today, the US began applying 25% tariffs to aluminum and steel imports worldwide, without exemptions, including Mexico. Mexican President Claudia Sheinbaum said that she would wait for a resolution in the upcoming weeks, adding "We will wait until April 2 and from then we will see whether our definition of reciprocal tariffs will be applied too."

Mexican Finance Minister Edgar Amador Zamora said the national economy is expanding but shows signs of slowing down linked to trade tensions with the US.

The US Bureau of Labor Statistics (BLS) revealed that consumer inflation in the US came beneath estimates in headline and underlying figures. Although this is a relief for the Federal Reserve (Fed), concerns that tariffs could be inflation-prone would likely keep the Fed in holding mode as they assess their impact on monetary policy.

Besides this, Fed officials will watch the release of the Producer Price Index (PPI) on Thursday, as some of its data is used to calculate the Core Personal Consumption Expenditures (PCE) Price Index.

Daily digest market movers: Mexican Peso rises boosted by weak US Dollar

• Data in Mexico shows the economy is slowing down, with private economists estimating growth at 0.81%, according to a Banco de Mexico (Banxico) February poll. This and a dismal Consumer Confidence report on Monday suggest that Banxico could lower interest rates at the upcoming March 27 meeting.
• According to Reuters, Mexico's president said on Wednesday that the country's government will not tap its open credit line with the International Monetary Fund (IMF), adding that current economic challenges do not yet require financing from the lender.
• The US Consumer Price Index (CPI) rose 0.2% MoM in February, below the expected 0.3%. On a year-over-year (YoY) basis, inflation eased from 3.0% to 2.8%.
• Core CPI, which excludes volatile food and energy prices, increased 0.2% MoM, slowing from January's 0.4% and falling short of forecasts. Over the past twelve months, Core CPI declined from 3.3% to 3.1%, signaling further disinflationary progress.
• Money market futures traders had been priced in 74 basis points of easing by the Federal Reserve (Fed) toward the end of the year.
• A Reuters poll showed that 70 out of 74 economists say the risk of recession has risen in the US, Canada and Mexico.
• In the boiler room, trade disputes between the US and Mexico remain front and center. If the countries reach an agreement, it could pave the way for a recovery of the Mexican currency. Otherwise, further USD/MXN upside is seen as US tariffs could trigger a recession in Mexico.

USD/MXN technical outlook: Mexican Peso surges as USD/MXN tumbles below 20.20

USD/MXN finally broke below the 20.20 figure, which opens the door to test the 20.00 figure, as sellers push the spot price below the 100-day Simple Moving Average (SMA) at 20.22. If the pair drops below 20.00, sellers could challenge the 200-day SMA at 19.62.

Conversely, if USD/MXN  climbs past the 100-day SMA, buyers could be tempted to challenge the 50-day SMA at 20.47. Once surpassed, the 20.50 mark is up next.