Mexican Peso strengthens as Fed Chair Powell signals patience

• USD/MXN drops 0.26% after Fed holds rates and Powell hints at cautious approach amid tariff and mandate uncertainty.
• Fed keeps rates at 4.25%-4.50%, citing rising risks to both inflation and employment goals.
• Powell adopts neutral tone, says Fed can act "quickly as appropriate" but isn't in a rush.
• Traders await Mexico's April CPI; Banxico still expected to cut rates on May 15 despite inflation risks.

The Mexican Peso extended its gains against the US Dollar on Wednesday after the US Federal Reserve (Fed) held rates unchanged as Fed Chair Jerome Powell hinted that policymakers would remain patient. At the time of writing, the USD/MXN trades at 19.61, down 0.26%.

On Wednesday, the Fed kept rates at 4.25%-4.50% for the third straight meeting in 2025, flagging uncertainty about the economy and heightened risks on both sides of the dual mandate of maximum employment and price stability.

The Fed Chair, Jerome Powell, maintained a neutral stance, emphasizing that the central bank is not in a hurry and that current monetary policy is appropriate. He added that if things develop, the Fed can move "quickly as appropriate," adding that the Fed goals would not be reached "if tariffs remain."

Powell said that if one of the mandates deviates too far from achieving the Fed's goal, then the central bank would determine which monetary policy tool to use to balance the risks of both mandates. When asked which of the two needs more attention, he said that it is too early to tell.

The USD/MXN spiked following the Fed's decision but then followed its downward path after reaching a daily high of 19.67.

In the meantime, Mexico's economic docket remains absent with USD/MXN traders awaiting April's Consumer Price Index (CPI) report on May 8. Estimates suggest that headline and core prices are set to rise sharply, according to a Reuters survey. Yet most analysts expect Banco de Mexico (Banxico) to lower interest rates at the May 15 meeting.

Daily digest market movers: Mexican Peso appreciates following Fed's decision

• Following the Fed's decision, data from the Chicago Board of Trade (CBOT) suggests that traders are pricing 77 bps of easing toward the end of 2025.
• Mexico's CPI in April is projected to jump from 3.80% to 3.90%. The core CPI is expected to rise from 3.64% in March to 3.90%. Although both readings are approaching the highest point of the 2% to 4% Banxico target for inflation, this would not stop Banxico from lowering interest rates next week.
• Banxico's Deputy Governor Jonathan Heath said that it is highly probable that the central bank will continue to lower its interest rates, although inflation risks are skewed to the upside.
• Heath added that in the second half of 2025, the decision would be taken with more caution, adding that there is room to ease policy.
• Citi Mexico Expectations Survey shows that most analysts estimate Banxico will cut rates by 50 bps at the May 15 meeting.
• Even though Mexico's latest GDP figures surprised the markets, with the economy dodging a technical recession, tariffs imposed on Mexican products, a reduced budget, and geopolitical uncertainties will continue to stress the country's finances and influence the Peso.

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

The USD/MXN is in a bearish downtrend, although buyers have kept the pair from dropping significantly below the yearly record low of 19.46, reached on April 24. After reaching a weekly high at the 20-day Simple Moving Average (SMA) at 19.75 on May 6, the exotic pair extended its losses.

The Relative Strength Index (RSI) favors further downside, with the RSI currently at 40 and poised to decline further.

Therefore, the USD/MXN's first support would be 19.50 and the yearly low of 19.46. Once these levels are cleared, the next floor level will be the 19.00 psychological level, followed by the August 19, 2024 low of 18.59.

On the other hand, if USD/MXN climbs past 19.78, expect a test of the 200-day SMA at 19.98. A breach of the latter will expose the 20.00 mark.