- The Mexican Peso is trading sideways as it awaits key economic data from Mexico.
- The latest IMF report has reiterated its lower GDP growth forecast for the country, indicating that data for the second half of the year is expected to be weak.
- USD/MXN is fluctuating below the crucial 20.00 level but continues to show a broader uptrend overall.
The Mexican Peso (MXN) is trading in a range against key pairs on Wednesday, maintaining the week’s sideways theme. Uncertainty surrounding the upcoming US election on November 5—where a Trump victory could negatively impact the Peso—combined with a global sell-off in bonds and weak economic data, is contributing to this situation. Additionally, the International Monetary Fund (IMF) has lowered its growth forecasts for Mexico, further weighing on the currency.
Mexican Peso Vulnerable to IMF Forecasts
The Peso is caught in a broader downtrend, influenced by several negative factors, particularly the IMF’s projection of lower economic growth. In its October World Economic
Outlook, the IMF kept its 2024 GDP growth forecast for Mexico at 1.5%, below the 2.1% annualized growth recorded in Q2 and consistent with Q1’s figure. This suggests that growth for the next two quarters may be substantially lower.
For 2025, the IMF expects growth of only 1.3%, significantly under the Bank of Mexico’s (Banxico) target of 3.0%, with a slight increase to 2.1% anticipated in 2026. If these forecasts hold, the resulting lower growth could lead to a sharper disinflation trend and prompt Banxico to cut interest rates more aggressively. Economists are already predicting a 50 basis point cut by the end of 2024, bringing the main interest rate down to 10.00%. This could place downward pressure on the Peso, as lower interest rates typically reduce foreign capital inflows.
Recent Mexican economic activity data also hinted at weaker performance, falling short of estimates. Monthly activity decreased by 0.3% in August, down from 0.6% in July, and below the expected decline of 0.1%. On an annual basis, economic activity expanded by just 0.4%, below the forecast of 0.7% and down from July’s 3.8% growth.
Retail sales data for August, set to be released on Wednesday, is expected to show a 0.4% annual decline and a 0.2% monthly increase. This will be followed by inflation data on Thursday, which will be crucial for the Peso as it directly affects Banxico's monetary policy decisions.
Technical Analysis: USD/MXN Remains Range-Bound in an Uptrend
USD/MXN is fluctuating in a narrow range just below the 20.00 level. Despite this consolidation, the pair remains in a medium- and long-term uptrend, suggesting that once the current range is broken, a move higher is likely. Technical analysis principles indicate that "the trend is your friend," which supports the expectation of further upside.
USD/MXN 4-hour Chart
The recent break above 19.83 (the October 1 high) confirms a potential upward move toward the next target around the September 10 high at 20.13.
