Mexican Peso holds firm as inflation rises and US Dollar slides

• Mexican Peso appreciates as USD/MXN dips to 19.57, market prices in another 50 bps Banxico cut.
• Mexican inflation beats estimates but stays within Banxico's target range.
• Citi survey shows most economists expect a 50 bps rate cut on May 15.
• Trump's selective tariffs raise trade risks but spare Mexico--for now.

The Mexican Peso registered modest gains versus the US Dollar on Thursday due to the latter's broad weakness, even though Mexico's inflation came in slightly higher than expected. At the time of writing, the USD/MXN trades at 19.57 after hitting a daily high of 19.63.

Mexico's annual inflation exceeded estimates in April, yet prices remained within Banco de Mexico's (Banxico) 2% to 4% inflation range goal. Although prices ticked up, Banxico is projected to continue cutting rates by 50 basis points (bps) at the May meeting, which would be its third reduction of that size, following four straight 25 bps cuts since mid-2024.

In its latest Expectations Survey, Citi Mexico revealed that 36 economists polled expect the central bank will cut rates on May 15.

US President Donald Trump's tariffs on Mexico's auto, steel and aluminum exports could further damage the country's manufacturing base. However, some exporters were relieved that Trump had applied duties to most US trading partners but had kept Mexico off the list.

Mexican President Claudia Sheinbaum has said she wants to reach an agreement with Trump, but did not strike a deal in a phone call with him last week.

Ahead in Mexico's economic docket, traders brace for the release of Economic Activity data.

Daily digest market movers: Mexican Peso unfazed by Banxico's dovish stance

• The central bank divergence between Banxico and the Fed favors further upside in USD/MXN. Banxico's Governing Council expressed its decision to continue easing the policy. Conversely, the Fed is considered cautious, as some officials have shown concerns about a reacceleration of inflation spurred by tariffs.
• Mexico's Mid-month inflation in April accelerated by 3.96%YoY, above estimates of 3.78%. Core prices jumped from 3.56% to 3.90% YoY. Both figures remained within Banxico's 3% goal plus or minus 1% range.
• Retail Sales in February were lower than expected, showcasing the ongoing economic slowdown, according to the Instituto Nacional de Estadistica Geografia e Informatica.
• Citi Mexico's expectations survey shows that economists expect Banxico to cut its rate by 50 basis points at the May meeting. For the full year, they project the main reference rate to end near 7.75%.
• Regarding the USD/MXN exchange rate, private analysts see the exotic pair finishing at 20.93, up from 20.90. Inflation in 2025 is projected to finish at 3.78% with core figures at 3.80% mostly aligned with the previous poll.
• Mexico's economy is expected to grow 0.2% in 2025, below the 0.3% projected in the prior survey.

USD/MXN technical outlook: Mexican Peso remains bullish as USD/MXN stays below the 200-day SMA

The USD/MXN downtrend remains intact, but it seems that sellers are taking a breather. They failed to drag the exchange rate below April 23's low of 19.46. A daily close below 19.50 could expose the current year-to-date (YTD) low, followed by the 19.00 psychological figure.

If buyers want to push prices higher, they must reclaim the 200-day SMA at 19.92, followed by the 20.00 figure. A breach of the latter will expose the confluence of the April 14 high and the 50-day SMA near 20.25-20.29 before testing the 100-day SMA at 20.33.