The Mexican peso is rising on trader optimism following the Trump-Sheinbaum call

The Mexican peso strengthened by 0.59% against the US dollar, which means the rate could deliver robust weekly performance.
Banxico minutes suggest the potential for a 50 basis point rate cut in December, improving the peso’s prospects.
President Sheinbaum is confident about avoiding Trump’s proposed 25% tariffs, increasing MXN’s stability.

The Mexican peso strengthened against the US dollar during the North American session, while the US dollar extended its decline and is about to post its biggest weekly loss in three months. Speculation that US President-elect Donald Trump may soften his trade rhetoric weighed on the US currency. Therefore, the USD/MXN rate is 20.29, a decline of 0.59%.

Mexico’s economic situation was feeble on Friday, but on Thursday the Bank of Mexico (Banxico) published the minutes of its November 14 monetary policy meeting.

Banxico board members voted unanimously to cut interest rates and, according to the minutes, agreed that the cycle of rate cuts “should continue.” Nevertheless, one official at the December meeting suggested a “larger adjustment to interest rates” in lithe of expectations that core inflation will continue to fall.

While this opens the door to a 50 basis point rate cut at the next meeting, USD/MXN trended lower after Wednesday’s talks between Mexican President Claudia Sheinbaum and US President-elect Donald Trump calmed concerns and strengthened the emerging market currency.

Earlier on Friday, President Sheinbaum expressed confidence in reaching an agreement with the United States to avoid President-elect Trump’s threat of 25% tariffs, according to Bloomberg. She added: “I am confident that we will reach an agreement, defending our sovereignty, with respect for Mexicans and respect for Mexico, with the cooperation that one government should have with another.”

Meanwhile, data from the US suggest that the economy may snail-paced down faster than expected. Earlier, the Chicago Purchasing Managers Index (PMI) for November declined. This was the second monthly decline from September’s levels.

Daily Market Change Summary: Mexican Peso gains value throughout the week

Banxico board members noted that the Mexican peso was broad, depreciating and volatile, largely due to uncertainty surrounding the U.S. elections.
They added that inflation risks are tilted to the upside, mentioning greater exchange rate depreciation. They acknowledged that the inflation outlook continued to require an overall restrictive policy stance.
Banxico members “agreed that Mexico’s inflation outlook is improving following the significant global shocks that have occurred in previous years. However, they cautioned that it still faces challenges.”
In the bank’s quarterly report, Banxico Governor Victoria Rodriguez said she was monitoring the recent peso volatility and added there was no need to intervene in the forex market.
In its quarterly report, it was revealed that Banxico updated its forecast for Mexico’s economy to grow in 2024 by 1.8%, up from 1.5%. Nevertheless, the central bank maintained its gross domestic product (GDP) projection for 2025 at 1.2%.
The CME FedWatch Tool suggests investors see a 66% chance of a 25 basis point (bps) rate cut at the Federal Reserve’s December meeting, down from 59% a day ago.
Data from the Chicago Board of Trade, via the December Fed Funds Rate Futures contract, shows investors estimate the Fed will ease 24 basis points by the end of 2024.

Technical Outlook: Mexican peso recovers with USD/MXN falling below 20.40

The USD/MXN pair remains bullish even though the week is expected to end with losses. Nevertheless, the pair has made a series of higher highs and lower lows, suggesting that buyers are in control. If buyers hold the exchange rate above the Nov. 19 low of 20.06, it could pave the way for further gains.

The first resistance will be the 20.50 level, followed by a year-to-date (YTD) high of 20.82. If exceeded, the next stop will be 9:00 p.m., ahead of the March 8, 2022 peak at 9:46 p.m., followed by the November 26, 2021 high at 10:15 p.m.

Conversely, if the bears take the rate below 20.06, the next support will be 20.00. If it weakens further, bears could threaten the 50-day straightforward moving average (SMA) at 19.92. Key support levels lie below the latter with the 100-day SMA at 19.48 ahead of the psychological mark of 19.00.