The Mexican peso weakened against the dollar and fell amid the Mexican holidays.

• The Mexican peso depreciated while local markets were closed for Benito Juarez’s birthday, USD/MXN points above 16.80.
• Banxico is expected to cut interest rates slightly amid focus on upcoming US economic data and FOMC results.
• This week, the focus is on key economic reports and decisions from the central banks of Mexico and the United States.

He Mexican peso (MXN) depreciates faster than US Dollar (USD) On Monday, markets in Mexico were closed to commemorate the birth of former Mexican President Benito Juarez. A week of robust economic activity, with monetary policy decisions from the US Federal Reserve (Fed) and the Bank of Mexico (Banxico) will be the main driver of price action. USD/MXN is trading up 0.88% at 16.85, close to a new five-day high.

Mexico’s economic agenda will be empty on the first day of the week, but will make headlines on Tuesday. The total demand and private expenditure will be published in the agenda. January retail sales data, which is expected to recover, will be released on Thursday, followed by Bancsico’s decision. Most investors expect the Mexican central bank to cut funding costs from 11.25% to 11% on March 21.

Across the border, US housing data could weigh on the dollar ahead of the Federal Open Market Committee (FOMC) decision. Market participants will keep an eye on any adjustments in the statement, the Summary of Economic Estimates (SEP) and Fed Chairman Jerome Powell’s press conference.

Daily summary of market activities: Mexican peso remains on the defensive against the accommodative Banco

• USD/MXN is being boosted by a narrowing interest rate differential between Mexico and the United States. This could strengthen and stabilize the USD/MXN direction towards 17.00.
• On March 21, the Banco is expected to lower interest rates, although there may be a split of 3-2 in the vote. Recent speeches and media appearances suggest that Banxico’s governing board is divided, with governors Victoria Rodríguez Ceja, Omar Mejía Castellazo and Galea Borja Gómez leaning toward a moderate stance. On the radical front are Jonathan Heath and Irene Espinosa Cantelano.
• Mexico’s economic slowdown is the main factor that could lead to the Banco’s first rate cut, as the central bank adjusted its economic forecasts downwards. Mexico’s central bank expects the economy to grow 2.8% year-on-year from 3% in 2024 and at 1.5% through 2025.
• Banxico’s private survey in February showed analysts expect a slowdown in inflation, which could lead to the central bank’s first rate cut. They see interest rates at 9.5% and the exchange rate at 18.31 at the end of the year.
• The latest inflation data in the United States has led investors to consider a less accommodative stance. Money market futures have adjusted their rate cut expectations higher in line with the Fed, projecting the federal funds rate (FFR) to be 4.71% by the end of the year. The next meeting of the Fed is to be held on March 19 and 20.
• CME’s FedWatch tool shows traders are reducing their bets on a 25 basis point rate cut in June, down from 72% at the start of last week to 58% at the time of writing.

Technical Analysis: Mexican Peso begins to weaken as USD/MXN moves towards 16.80

USD/MXN is about to change to a neutral bias, as buyers have intervened around the yearly lows and lifted the exchange rate closer to the 16.80 point area. A break of the latter could push the pair towards the 17.00 figure. Once crossed, the next stop will be the 50-day SMA at 17.02, followed by the 100-day SMA at 17.16 and the 200-day SMA at 17.21.

On the other hand, if the pair stays below 16.80, it could pave the way for a test of last year’s low of 16.62, followed by October 2015 low of 16.32 and the psychological level of 16.00.

USD/MXN Price Action – Daily Chart