Mexican Peso steady as Powell signals 50 bps rate cuts for 2024

• Mexican Peso stays flat against the Greenback, anticipating Claudia Sheinbaum’s October 1 inauguration.
• Business Confidence for September, expected on October 2, could mark a fourth consecutive month of improvement.
• Despite Peso gains, the US Dollar Index rises by 0.20% as stronger US economic data bolsters the Greenback.

The Mexican Peso erased some of its earlier gains and is virtually unchanged against the Greenback amid a scarce economic docket in Mexico. The most important event will be on October 1, when President-Elect Claudia Sheinbaum takes the place of outgoing President Andres Manuel Lopez Obrador. However, Federal Reserve Chairman Jerome Powell is crossing the wires, strengthening the Greenback. The USD/MXN trades at 19.66 flatlines.

Mexico’s schedule will be light on Monday but will gather steam on Tuesday, October 1, when Claudia Sheinbaum’s inauguration will be held. On October 2, Business Confidence for September will be revealed, though there are no estimates. It could continue to improve for the fourth straight month after the index bottomed at 52.9. Since then, confidence has been improving for three straight months.

Market participants will be eyeing Sheinbaum’s message regarding the state of the law, economics and fiscal comments.

Across the northern side of the border, the Chicago Fed National Activity Index exceeded estimates and August’s number, indicating that conditions are improving and that the economy remains solid.

Fed Chair Jerome Powell, speaking at the 66th NABE Annual Meeting, dismissed the possibility of a 50-basis-point (bps) rate cut at either of the central bank’s two remaining policy meetings this year. Powell indicated that if the economy evolves as expected, two more 25 bps cuts will be implemented in 2024.

Recently, comments from Atlanta Fed President Raphael Bostic revealed that he will be watching jobs data to assess the Fed’s policy stance. He added that he’s open to cutting rates by 50 basis points (bps), though it would depend on jobs data. Bostic acknowledged that he was not ready to declare victory on inflation.

Even though the USD/MXN prints losses, the Greenback is strengthening across the board, as portrayed by the US Dollar Index (DXY), which is up by 0.20% to 100.61.

Daily digest market movers: Mexican Peso recovers despite strong Chicago PMI data

• Mexican political turmoil eases as market participants prepare for the change of president on October 1, a bank holiday in Mexico.
• Banxico is expected to lower borrowing costs by 175 bps toward the end of 2025, according to the swaps markets.
• The Chicago Fed National Activity Index, also known as Chicago PMI, improved for the third straight month, rising by 46.6 and overshadowing estimates and August’s data.
• The latest Personal Consumption Expenditures (PCE) Price Index report was mixed. In August, headline inflation rose by 2.2% YoY, down from 2.5% and a tenth lower than the consensus estimate.
• Conversely, as expected, the core PCE modestly increased from 2.6% to 2.7% for the same period.
• Market participants have put the odds of a 25 bps cut at 56.4%, up from 46.7% a day ago. The chances for a larger 50 bps cut stand at 43.6%, according to the CME FedWatch Tool.

USD/MXN technical analysis: Mexican Peso recovers as USD/MXN tumbles below 19.65

The USD/MXN remains upwardly biased, though price action shifted sideways as traders remain uncertain about Sheinbaum’s message. The Relative Strength Index (RSI) remains bullish, though short-term sellers are stepping in.

If USD/MXN drops below 19.50, the next support would be the September 24 swing low of 19.23 before the pair moves toward the September 18 low of 19.06. Once those levels are surpassed, the 19.00 figure emerges as the following line of defense.

Conversely, for a bullish resumption, the USD/MXN would need to clear the September 27 high at 19.75, which, once removed, will expose the 20.00 mark. Once those levels are surrendered, the current year-to-date (YTD) high of 20.22 will be the next stop.