The Mexican Peso (MXN) made gains against the US Dollar on Tuesday after US inflation data showed a moderate rise in producer prices, falling short of economists’ expectations. While the data did not alter traders’ expectations for a single interest rate cut by the US Federal Reserve (Fed) in 2025, the US Dollar softened, weighing on the USD/MXN pair, which traded at 20.45, down 0.95%.
Market Overview: US Inflation Data and Mexico’s Economic Plans Impact Peso
Mexico’s economic calendar remains light, with Gross Fixed Investment data for October scheduled for release on January 15. Meanwhile, President Claudia Sheinbaum introduced a plan aimed at boosting nearshoring incentives and reducing imports from China. The initiative includes tax deductions and sector-specific plans for both domestic and foreign businesses, with an official decree expected on January 17.
In the US, the December Producer Price Index (PPI) increased by 3.3% year-over-year, falling short of the forecasted 3.4%. Core PPI rose 3.5%, missing the expected 3.8%. This data suggests that inflation is continuing its downward trend. Market participants are now awaiting the December Consumer Price Index (CPI) release, which is anticipated to hold steady at familiar levels.
This week’s US economic agenda includes the CPI, Fed speeches, Retail Sales data, and jobless claims for the week ending January 11.
Daily Digest: Peso Strengthens as Market Awaits US CPI Report
The Mexican Peso gained further momentum on news that the incoming Trump administration may consider gradual tariff hikes of 2% to 5% on a monthly basis. In her recent announcement, Sheinbaum detailed “Plan Mexico,” which aims to incentivize nearshoring, including tax breaks for domestic and foreign companies.
However, concerns remain over the Mexican economy, with former Deputy Finance Minister Alejandro Werner predicting a potential recession and the risk of Mexico losing its investment-grade status by 2027.
The Banco de Mexico (Banxico) minutes from its December meeting showed inflation continuing to trend lower, signaling that the central bank could ease rates further. Meanwhile, the US Federal Reserve has indicated a more cautious approach to rate cuts, with officials acknowledging that inflation risks remain to the upside.
Kansas City Fed President Jeffrey Schmid stated that the Fed would take action if Trump’s tariffs led to inflationary pressures or job losses.
Technical Outlook: USD/MXN Faces Short-Term Bearish Momentum
The USD/MXN uptrend remains intact as long as the price holds above the 50-day Simple Moving Average (SMA) at 20.32, but the short-term momentum has shifted slightly bearish. The Relative Strength Index (RSI) is still bullish but trending toward its neutral line, suggesting that sellers may be entering the market.
The first support level for USD/MXN will be the 50-day SMA at 20.32, followed by the psychological 20.00 level. If the pair weakens further, the 100-day SMA at 19.98 could come into play.
On the upside, a move above 20.50 would encounter resistance at the year-to-date peak of 20.90. If that level is surpassed, the next resistance zone would be the March 8, 2022 high of 21.46, followed by 21.50 and the 22.00 psychological barrier.
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