Mexican Peso defies gloomy data, rockets higher on USD weakness

• Mexican Peso advances as USD/MXN plunges below 19.90, down over 1%.
• The Peso shrugs off Mexico's weak industrial output and declining consumer confidence fueling recession concerns.
• US consumer sentiment plunges amid rising inflation expectations, driven by upcoming Trump administration tariffs.

The Mexican Peso (MXN) rallied against the US Dollar (USD) on Friday, ignoring softer-than-expected economic data revealed during the week that suggests the economy might slow down. A deterioration of consumer sentiment in the United States (US) exerted pressure on the Greenback, which is poised to finish the week with losses. The USD/MXN trades at 19.86, down more than 1%.

The market mood turned buoyant, a tailwind for the emerging market currency. Dismal reports in Consumer Confidence and Industrial Production in Mexico paint a gloomy economic outlook, further confirmed by Banco de Mexico (Banxico) Director of Economic Research Alejandrina Salcedo Cisneros.

She commented that uncertainty is impacting the country's business, hinting at an outlook for a moderate expansion of regional economies. Banxico estimated economic contraction in all regions of the country. Nationwide, growth declined -0.6 % in Q4 compared to the previous quarter in seasonally-adjusted figures.

In the US, the University of Michigan (UoM) Consumer Sentiment Index registered a dismal print, while inflation expectations aimed higher due to US President Trump's tariffs.

Traders' eyes are on next week's Federal Reserve (Fed) policy decision. Last Friday, Fed Chair Jerome Powell revealed that "market measures of inflation expectations have moved up, driven by tariffs."

Next week, traders will look at Retail Sales, housing data, the Fed's monetary policy decisions and economic projections.

Daily digest market movers: Mexican Peso surges as the Greenback weakens

• Mexico's Industrial Production plunges to -2.9% YoY, worse than December's -2.7% fall alongside a deterioration on Consumer Confidence suggests the Mexican Peso could depreciate despite the ongoing gains observed that are mostly due to overall US Dollar weakness.
• The economy in Mexico is slowing down sharply as projected by private analysts polled by Banco de Mexico (Banxico). They expect growth at 0.81%.
• Banxico is expected to continue easing policy at the March 27 meeting spurred by the evolution of the disinflation process and a stagnant economy.
• On Wednesday, 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 University of Michigan (UoM) Consumer Sentiment survey showed that in March, sentiment deteriorated from 64.7 to 57.9, below the forecast of 63.1. Notably, inflation expectations jumped with Americans seeing 12-month inflation rise from 4.3% to 4.9%. Over a five-year period, consumers saw prices running at 3.9%, up from 3.5%.
• Money market futures traders had been priced in 67 basis points of easing by the Fed toward the end of the year, down from 74 a day ago.
• 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 collapses below 20.00

The USD/MXN finally cleared the 20.00 figure, hitting a fourth-month low of 19.84 earlier during the North American session. Momentum favors further downside on the pair as depicted by the Relative Strength Index (RSI) turning bearish and closing into oversold territory. Hence, the path of least resistance is tilted to the downside.

The USD/MXN first support would be the 200-day Simple Moving Average (SMA) at 19.67. If surpassed, the next stop would be the 19.50 figure, ahead of the September 18 swing low of 19.06. For a bullish resumption, the pair's first ceiling level is 20.00. A decisive break will expose the 100-day SMA at 20.35.