USD/MXN breaks a two-day winning streak and pulls back from its highest level in fifteen days.
The US Labor Day holiday and mixed sentiment allow the Mexican peso to regain bullish momentum.
This week’s main indicators are Mexico’s August headline inflation and the US ISM Services PMI.
The USD/MXN currency pair is recovering from a two-week high and breaking a two-day winning streak as it dips back to 17.05 in the early hours of Monday’s European session. In doing so, the pair justifies the market’s doubts about the Federal Reserve’s (Fed’s) ability to hike rates further while also hinting at a tough stance on Mexico’s central bank, Banxico.
The US dollar barely managed to end the week in positive territory after a weak start as the downgrade to US second quarter GDP growth and weaker PMIs initially spurred dollar bulls before beating bullish inflation data and mostly impressive jobs numbers published.
On Friday, US Non-Farm Payrolls (NFP) rose to 187k in August versus 170k expected and 157k previously (revised), while the unemployment rate rose to 3.8% from 3.5%, as expected from the markets and from the previous one. In addition, average hourly earnings also fell to 0.2% mom and 4.3% yoy, compared to 0.4% and 4.4% previously. The US ISM manufacturing purchasing managers’ index also impressed US dollar buyers, rising to 47.6 from analyst estimates of 47.0 and 46.4 previously.
Notably, Federal Reserve Bank of Cleveland President Loretta J. Mester downplayed the rise in the unemployment rate to 3.8%, saying the level “remains low.” In her speech at an event in Germany, the head of economic policy described the US labor market as solid despite the recent realignment. Regarding inflation, Mester acknowledged that progress had been made but noted that it remained high.
Still, the latest interest rate futures data suggests that the Federal Reserve (Fed) has a near 90% chance of inaction in September, and the likelihood of another rate hike in the future is falling. 2024
On the downside, Banxico officials appear to be hawkish, and as such, this week’s Mexico headline inflation for August, due to be released on Thursday, as well as Wednesday’s US ISM services PMI, are key for traders in the pair.
It should be noted that the stimulus from China and the US-China tensions are additional filters aside from the mixed data out of the US questioning USD/MXN moves.
On sentiment, US 10-year Treasury yields have fallen for the past two straight weeks after climbing 4.18% to their highest level since 2007. Additionally, Wall Street benchmarks have also been improving for the past few days despite a weak close on Friday, while S&P 500 futures are posting modest losses at the time of writing.
Looking ahead, a weak economic calendar and US holidays could allow USD/MXN to consolidate earlier weekly losses.
Although a bearish resistance line from late May, which stands around 17.20 at the time of writing, caps the immediate upside in the USD/MXN pair, sellers need confirmation of a convergence of the 21-day and 50-day moving averages nearby from 16.98 to 16.97 to regain control.