• The Mexican peso strengthened by 0.50% against the dollar after a week of mixed data from the US, which reinforced the risk of a Fed rate cut.
• Light economic data indicates that US import prices will escalate slightly while export prices will decline in November.
• Upcoming Fed and Banxico decisions next week could further impact the USD/MXN rate.

The Mexican peso recovered after posting losses on Thursday and strengthened by about 0.50% against the dollar during the North American session. Mixed U.S. economic data released this week reinforced predictions that the Federal Reserve (Fed) will cut interest rates next week. USD/MXN is trading at 20.11, after hitting a high of 20.26.

Friday’s economic situation in Mexico and the US is unfavorable. US import and export prices are shown, with the former seeing a minimal escalate and the latter degenerating in November.

During the week, Mexico’s economic data revealed that headline and core inflation fell below estimates in November. This strengthened the case for another interest rate cut by the Bank of Mexico (Banxico), whose last meeting will be held on December 19.

Additional data showed consumer confidence deteriorated in November, falling from 49.5 to 47.7. Industrial production for the same period, published on December 12, highlighted the ongoing economic slowdown, showing negative numbers in monthly and annual data.

Still, USD/MXN deepened its losses even as the US Dollar Index (DXY) tracks the dollar’s performance against six currencies, has posted daily gains for six straight days and remains at 107.00.

The peso has come under pressure from the harsh rhetoric of US President-elect Donald Trump, who has threatened to impose 25% tariffs on imports from Mexico if the government does not support fight illegal immigration and drug cartels.

Nevertheless, the USD/MXN exchange rate continued to decline in favor of the Mexican currency as the interest rate differential persisted.

The Fed and Banxico are expected to cut borrowing costs next week. Barring any surprises, USD/MXN may extend its downtrend towards 20.00 before the end of the year.

Daily summary of market changes: Mexican peso strengthened by speculation on Fed interest rate cuts

• US import prices in November increased by 0.1% m/m, matching the October reading and exceeding expectations of a -0.2% decline.
• Export prices in November remained unchanged at 0% m/m, compared to 1% in October, but exceeded forecasts for a decline of -0.2%.
• According to the swap market, Banxico will reduce its primary reference rate from 10.25% to 10.00% (25 basis points) at its December 19 meeting.
• Banxico Governor Victoria Rodriguez Ceja remains dovish. In a recent interview with Reuters, she said that given the progress of disinflation, the central bank may continue to reduce borrowing costs.
• JPMorgan analysts suggested Banxico could cut interest rates by 50 basis points as inflation data shows prices falling faster than expected.
• Investor attention shifted to the Fed’s December 17-18 monetary policy meeting, with investors predicting a 93% chance of a 25 basis point rate cut based on Chicago Board of Trade data.
• Once the decision is made, investors will watch Fed Chair Jerome Powell’s news conference for clues about the 2025 policy path.

USD/MXN Technical Outlook: Mexican Peso Recovers as USD/MXN Falls towards 20.10

The USD/MXN pair will end the week consolidating around 20:00-20:25 for five days in a row, unable to break the upper or lower limits of the range, with buyers and sellers finding acceptance in this area.

However, the dynamics have changed slightly in a bearish direction, as illustrated by the relative strength index (RSI). USD/MXN will be trending downwards for the foreseeable future.

The first support for the USD/MXN pair will be the 50-day basic moving average (SMA) at 20.07, which has remained almost unchanged since December 6. If the pair falls below, it could test 20.00, with further declines towards the 100-day SMA at 19.70.

On the other hand, if USD/MXN breaks above 20.25, the immediate resistance will be 20.50. A breach of the latter will expose the December 2 intraday high of 20.59, followed by a year-to-date (YTD) high of 20.82 and then 21.00.