• Mexican peso depreciates after Fed cuts interest rates by 50 basis points.
• The Federal Reserve forecasts the federal funds rate at 4.4% in 2024, balancing price stability and employment goals.
• Investors are awaiting Banxico’s decision, which is scheduled for September 26 and concerns a 0.25% interest rate cut.

The Mexican peso is slightly weaker against the U.S. dollar during the North American session on Thursday after the Federal Reserve (Fed) lowered interest rates for the first time in four years. Data from the United States (US) failed to spark any movement in the exotic pair as USD/MXN is trading at 19.31, posting modest gains of over 0.17%.

Mexico’s meager economic calendar has the emerging-market currency leaning toward the U.S. economy’s momentum. The Fed cut rates by 50 basis points (bps) on Wednesday as it grew more confident that inflation would “sustainably” hit its 2% target and that the labor market would not be further weakened. In his monetary policy statement, Fed Chairman Jerome Powell acknowledged that the dual mandates of price stability and maximum employment are now roughly balanced, while noting that the economic outlook remains uncertain.

At the same meeting, Federal Reserve officials updated their Summary of Economic Projections (SEP), or scatterplot, which projects the federal funds rate will end 2024 at 4.4%.

The U.S. Department of Labor recently revealed that the number of Americans filing for unemployment benefits in the week ending September 14 was lower than expected but improved compared to the last reading.

The exotic USD/MXN pair rose towards an intraday high of 19.40 following the data release, which could deter the US central bank from aggressively easing policy and instead limit it to a quarter-percentage-point cut.

Meanwhile, investors’ attention is on the Bank of Mexico (Banxico), which is likely to cut interest rates by 0.25% during its monetary policy meeting scheduled for September 26.

Daily Market Factors Review: Mexican Peso Strengthens After Fed’s Decision

• The widening interest rate differential between Mexico and the U.S. could justify further declines in the USD/MXN exchange rate. However, concerns about judicial reform have constrained the Mexican peso’s gains.
• According to various banks and rating agencies, the impact of the overhaul of the judicial system remains far from being felt. The lack of rule of law and transparency could be factors that correct Mexico’s creditworthiness in the long term.
• The number of novel jobless claims in the U.S. in the week ending September 14 fell from 231,000 to 219,000, below estimates of 230,000.
• U.S. existing home sales fell 2.5% month over month in August, falling from 3.96 million to 3.86 million, marking the fourth decline this year.
• During a news conference, Fed Chairman Powell said inflation risks had receded and stressed the economy remains sturdy. He left the Fed’s options open, meaning they could adjust the pace of easing if inflation persists.
• Powell added that the SEP data shows the committee is in no hurry to normalize policy.
• According to the Core Personal Consumer Price Index, the Fed projects inflation will fall to 2.6% in 2024, 2.2% in 2025 and 2% by 2026.
• US Federal Reserve officials estimate that the US economy will grow by 2% in 2024, and the unemployment rate will rise to 4.4% by the end of the year.
• December 2024 federal funds rate futures suggest the Fed could cut rates by at least 69 basis points, meaning the market is expecting one 50bp rate cut and one 25bp rate cut in 2024 over the next two meetings.

USD/MXN Technical Outlook: Mexican Peso Falls, USD/MXN Maintains Gains Above 19.30

USD/MXN’s uptrend continues, although the pair failed to recover following the Fed’s decision. Next week’s Banxico policy meeting could push the exchange rate outside the 19.00-19.50 range.

The dynamics remain mixed, but favor sellers in the tiny term, as shown by the Relative Strength Index (RSI).

That said, if USD/MXN falls below September 18, at 19.06, it will reveal the psychological value of 19.00. Further losses are below, with the next support being the 50-day basic moving average (SMA) at 18.99, and then the recent cycle low at 18.59, the daily low from August 19.

Conversely, if USD/MXN rises above 19.50, the next resistance will be the psychological level of 20.00. Further growth occurs at the yearly high of 20.22 and then at 20.50.