- The Mexican Peso has lost ground in its major pairs after the assassination attempt on Donald Trump.
- Trump’s poll ratings improved after the incident and if he wins the election he is likely to bring in trade tariffs.
- USD/MXN is showing signs of reversing its recent decline from the June highs.
The Mexican Peso (MXN) dips in its most traded pairs on Tuesday. The Peso’s weakness comes on the back of the news that former US President Donald Trump was wounded in an assassination attempt at a rally in Pennsylvania on Saturday. This has led to sudden rise in US Treasury yields and the US Dollar (USD), but has weakened MXN.
Although the attack harmed Trump physically it improved his poll ratings by several points. This is negative for the Mexican Peso since a Trump presidency would probably lead to increased tariffs on foreign imports including those from Mexico, negatively impacting US-Mexico trade.
At the time of writing, one US Dollar (USD) buys 17.77 Mexican Pesos, EUR/MXN trades at 19.36, and GBP/MXN at 23.03.
Mexican Peso reacts to Banxico dissenter’s comment
The Mexican Peso made back some of its losses on Monday as a result of comments from the Deputy Governor of the Bank of Mexico (Banxico), Omar Mejia which supported the Mexican currency. Mejia was the only person on the Banxico board who voted to cut interest rates at the Banxico’s last June meeting, according to the Minutes which were released last week.
In his comments, Mejia qualified his decision to vote for a 0.25% rate cut by saying that cuts should be implemented gradually, and one interest-rate cut would not imply the beginning of an easing cycle.
The Banxico’s policy interest rate currently stands at 11.00%, one of the highest in a developing country. It is the main reason for the Peso’s show of strength since 2020, when it traded at a low of 25.79 against the US Dollar, only to rise over the following four years to a high of 16.26 in April 2024.
Currencies in countries with high interest rates tend to appreciate because they benefit from greater capital inflows.
Technical Analysis: USD/MXN shows signs of bullish reversal
USD/MXN is showing signs of reversing its recent decline from the June 12 high.
It found support at the 50-day Simple Moving Average (SMA) at 17.65 and formed a green up day on Monday after the long, red down day on Friday (shaded blue rectangle in chart below). This pattern is similar to a two-day reversal pattern and could be a sign the pair is about to start a more bullish phase.
USD/MXN Daily Chart
Another bullish sign is that USD/MXN might also have completed a Measured Move (MM) pattern.
MMs are large, three-wave zig-zags, with waves labeled A,B and C. The end of wave C can be estimated using the length of wave A as a guide. C is usually equal to A or, at least, a Fibonacci ratio of A. C is now roughly the same length as A and is more than the Fibonacci 0.618 ratio of A, suggesting the pattern could be complete.
Although it is too early to be sure, the pair could be reversing course and beginning a short-term uptrend.
A break below the 50-day Simple Moving Average (SMA) at 17.60, however, would reconfirm the dominant short-term downtrend and lead to a probable decline to 17.27 at the level of the 200-day SMA and a major multi-month trendline.
Meanwhile, the direction of the medium and long-term trends remain in doubt.
Banxico FAQs
The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican Peso (MXN), and to set the monetary policy. To this end, its main objective is to maintain low and stable inflation within target levels – at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%.
The main tool of the Banxico to guide monetary policy is by setting interest rates. When inflation is above target, the bank will attempt to tame it by raising rates, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN. The rate differential with the USD, or how the Banxico is expected to set interest rates compared with the US Federal Reserve (Fed), is a key factor.
Banxico meets eight times a year, and its monetary policy is greatly influenced by decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee usually gathers a week after the Fed. In doing so, Banxico reacts and sometimes anticipates monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico did it first in an attempt to diminish the chances of a substantial depreciation of the Mexican Peso (MXN) and to prevent capital outflows that could destabilize the country.