- Mexican peso recovers as weak US data prompts sell-off, pushing USD/MXN off four-week high.
- US job growth disappointed, prompting dollar weakness; Inflation concerns persist as average hourly earnings rise.
- Mexican inflation falls for fifth straight month, defying estimates; The CME FedWatch Tool shows increased chances of a Fed rate hike.
The Mexican peso (MXN) recovered a bit on Friday as soft data on the United States (US) sparked a selloff in the US dollar (USD). USD/MXN thus fell from four-week highs, trading at 17.1388, or 0.55%.
USD/MXN reacts to stunning Nonfarm Payrolls numbers and inflation concerns
The US Department of Labor revealed that June Non-agricultural wages Figures for June showed the economy added 209,000 jobs, below estimates of 225,000, leading to an overall weaker US dollar. The Unemployment rate portrayed a tight labor market with June data of 3.6% vs. 3.7%, while average hourly earnings (AHE) rose 4.4% year-on-year, up from the previous month’s 4.2%, adding to inflationary pressures and keeping the Fed under pressure.
After the data, USD/MXN continued its downtrend, falling from 17.30 to 17.11. Meanwhile, the U.S. 10-year Treasury yielded 4.058%, down one and a half basis points, while the U.S. Dollar Index ( DXY ), a measure of the greenback’s value against a basket of six currencies, fell to 102.279, a loss of 0.81%. after staying above 103,000 over the past four days.
Across the border, Mexico’s economic docker revealed that June inflation fell for the fifth month in a row to 5.06%, as shown by INEGI. Consumer prices fell by 0.10% in June from May, beating estimates of -0.09%. The annual core consumer price index, which strips out volatile items, was 6.89% in June, higher than the forecast of 6.87%.
On expectations for the US Federal Reserve’s (Fed) July monetary policy, the CME FedWatch Tool shows the odds at 92.4%, up from last week’s 86.8%; however, investors do not anticipate further hikes even as the Fed’s scatter chart shows the federal funds rate (FFR) peaking at 5.6%.
USD/MXN Price Analysis: Technical Outlook
Given the fundamental backdrop, USD/MXN would likely continue to decline slightly as the interest rate differential between Mexico (11.25%) and the US (5.125%) favors the Mexican peso (MXN). USD/MXN could retest 170000, but some support levels must be broken on the way down. USD/MXN’s first support level would be 17.1000, followed by 17.0000. A breach of the latter will reveal a year-to-date (YTD) low at 16.9761.