Mexican Peso climbs on strong data, risk-on mood weighing on US Dollar

• Mexican Peso set for 0.89% weekly gain as economic resilience surprises markets.
• Trump's mixed tariff comments stir volatility, but risk appetite lifts emerging market currencies.
• Traders brace for Mexico's Q1 GDP release next week to gauge recession risks.

The Mexican Peso extended its gains against the US Dollar for the second consecutive day, poised to finish the week with gains of 0.89%, sponsored by an improvement in risk appetite and better-than-expected Mexico economic data. At the time of writing, the USD/MXN trades at 19.52, down 0.32%.

Wall Street closed with gains in Friday's session, even though US President Donald Trump delivered contradictory remarks about China. Overnight news for American traders revealed Beijing's willingness to reduce tariffs on US products. Despite this, Trump said he won't lower tariffs unless "they give us something substantial."

The Instituto Nacional de Estadistica Geografia e Informatica (INEGI) revealed that the Mexican economy grew in February, contrary to forecasts, which expected a moderate expansion.

Meanwhile, in the US, the University of Michigan (UoM) 's April Consumer Sentiment index deteriorated sharply, posting its fourth lowest reading since the late 1970s, an indication that Americans grew doubtful about the economic outlook.

Therefore, the USD/MXN edged lower, propelled by goodish Mexico's data. However, next week, INEGI will release the Gross Domestic Product (GDP) Growth Rate for the first quarter of 2025. A negative reading would confirm that the economy is in a technical recession.

Daily digest market movers: Mexican Peso appreciated during the week despite Banxico's dovish posture

• 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 Economic Activity in February expanded by 1% MoM, above forecasts for a 0.6% growth. On a yearly basis, activity dipped from 0% to -0.7%, better than expected.
• Economic data revealed during the week witnessed a reacceleration on inflation in the first half of April, revealed INEGI. Retail Sales in February were lower than expected, showcasing the ongoing economic slowdown.
• Banxico's Deputy Governor Omar Mejia Castelazo revealed that the economy has been undergoing a slowdown since Q4 2023, he said in Washington.
• 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 key technical level

Price action suggests the USD/MXN is bearishly biased and might continue its downtrend, once it registers a daily close below 19.50. In that outcome, the next support would be 23's low of 19.46, 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 19.93, 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.