Mexican Peso slumps as US recession fears boost US Dollar despite surprise GDP beat

• Mexican Peso depreciates as USD/MXN rises to 19.60 as safe-haven demand lifts Greenback.
• Mexico dodges technical recession, but outlook remains fragile, warns Pantheon Macroeconomics.
• US GDP contraction, weak jobs data, and sticky inflation spark stagflation concerns.
• Core PCE dips but stays above Fed's 2% target, fueling rate cut speculatio

The Mexican Peso lost some ground against the US Dollar and edged down over 0.31% late during the North American session due to fears that the US could face an economic recession, as revealed by data. At the same time, Mexico's economy surprisingly expanded on the first quarter, dodging a "technical recession." At the time of writing, the USD/MXN trades at 19.60 as the Asian session begins.

US and Mexican economic data drove the USD/MXN pair on Wednesday. In the US, the Gross Domestic Product (GDP) for the first quarter of 2025 missed estimates and revealed that the economy is shrinking. On the other side of the border, the Instituto Nacional de Estadistica Geografia e Informatica (INEGI) revealed that the economy grew, contrary to economists' estimates.

Andres Abadia, Chief Latin American economist at Pantheon Macroeconomics, wrote in a note to clients, "The quarter-to-quarter gain helped the Mexican economy avoid a technical recession, but it does little to alter the weak trajectory."

Although economic growth divergence favored the Peso, other US data sparked a flight to the Greenback's safe-haven status. Soft labor market data and high prices triggered an alarm about a possible stagflationary scenario in the US.

ADP revealed that companies hired fewer people in April than in March. Thirty minutes after the US cash equity market opened, the Federal Reserve's favorite inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index, revealed that inflation dipped as expected. Yet, it remained above the Fed's 2% goal.

Daily digest market movers: Mexican Peso fails to rally on goodish GDP data

• Mexico's economic data revealed on Monday showed that the Balance of Trade printed a surplus and that labor market conditions remain solid as the Unemployment Rate ticked lower in March compared to February
• Economic data revealed last week showcasing the ongoing economic slowdown as Retail Sales in February missed estimates. However, not all has been said, as traders await GDP for Q1.
• INEGI revealed that the GDP for the first quarter of 2025 came at 0.2% quarterly. The figure exceeded the forecast of 0% and improved compared to last year's Q4 contraction of -0.6%, aligned with estimates.
• Across the border, the US. GDP contracted by 0.3% in Q1 2025, missing expectations for a 0.4% expansion and marking a sharp slowdown from Q4 2024's 2.4% growth, according to the Commerce Department.
• US ADP employment data for April showed that private companies added 62K jobs, well below the 108K estimate, suggesting that Friday's Nonfarm Payrolls may also disappoint.
• As expected, the Core PCE Price Index--the Fed's preferred inflation gauge--rose 2.6% YoY in March, easing from February's 3%, pointing to continued disinflation.

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

From a technical perspective, the USD/MXN remains downward biased, but it has consolidated during the last ten days. As depicted by price action, it seems that sellers lack the strength to push the pair below the April 23  year-to-date (YTD) low of 19.46, which might send the pair drifting if it clears that level. In that outcome the next support would be the 19.00 psychological level.

Conversely, if USD/MXN rallies past the 200-day SMA at 19.96, this can clear the path to challenge the 20.00 figure followed by the 50-day SMA at 20.12.