Mexican Peso Sees 3-Day High as US Dollar Weakness Boosts Emerging Markets Currency

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The Mexican Peso ended the week with a 1% gain, reaching a three-day high against the US Dollar on Friday. The currency’s appreciation came despite mixed US jobs data, which sparked speculation that the Federal Reserve may cut interest rates in September.

Wall Street trading was mixed, while the US Dollar staged a slight recovery against the Mexican Peso. Mexico’s economic calendar is empty for this week, but traders are looking ahead to next week’s release of Consumer Price Index (CPI) data and Bank of Mexico (Banxico) monetary policy minutes.

US Nonfarm Payrolls data for June exceeded estimates, but downward revisions to April and May’s figures increased bets that the Fed will begin its easing cycle in September. Average Hourly Earnings (AHE) were flat monthly, but dipped over the past 12 months, while the Unemployment Rate rose according to the US Bureau of Labor Statistics.

US Treasury yields fell six-and-a-half basis points, pushing the US Dollar lower and benefiting emerging market currencies like the Mexican Peso. The US Dollar Index dropped 0.12%, trimming earlier losses to around 105.00.

The odds of a September interest rate cut rose to 70% according to the CME FedWatch Tool, up from 66% the previous day.

Banxico’s survey showed economists expect Mexico’s Gross Domestic Product (GDP) to end the year at 2%, down from 2.1%. They also predict Banxico will cut rates from 11.00% to 10.25%.

Technical analysis suggests the Mexican Peso is trading near weekly lows, with the USD/MXN hovering around 18.10. A Doji candle forms a short-term range-bound trading pattern, indicating neither buyers nor sellers are gaining control.

For a bullish resumption, the USD/MXN must break above 18.10 and rally to challenge the June high of 18.59 and then the YTD high at 18.99. Conversely, sellers need a drop below 18.00 to extend the decline toward the December high of 17.56 and the 50-day Simple Moving Average (SMA) at 17.37.

Source: FXStreet