The Mexican Peso (MXN) weakened against the US Dollar (USD) on Thursday after the Bank of Mexico (Banxico) delivered a widely anticipated 50 basis point interest rate cut, pushing USD/MXN up 0.61% to 19.49 at the time of writing. This marks the seventh straight rate reduction by Banxico, as policymakers continue their easing cycle amid moderating inflation and a cooling domestic economy.
The decision, backed unanimously by the central bank‘s board, reflects Banxico’s confidence in inflation trends. Despite revising inflation forecasts slightly upward, officials remain optimistic that headline inflation will return to the 3% target by the third quarter of 2026. Banxico signaled further 50 bps cuts remain on the table, stating that monetary policy will be “calibrated” as conditions evolve.
However, the rate cut narrowed the interest rate differential between Mexico and the US, undermining the Peso and offering the Greenback additional support. The dovish outlook has cast doubt on the Peso’s ability to stage a recovery in the near term.
US Economic Backdrop: Slowing Growth, Stable Jobs
US economic data added complexity to the USD/MXN outlook. Producer Price Index (PPI) figures for April confirmed that disinflation is ongoing, while retail sales data pointed to weakening consumer spending. On the labor front, Initial Jobless Claims held steady at 229,000, showing continued labor market resilience.
Investors now await the University of Michigan’s preliminary Consumer Sentiment Index for June, with markets hoping for a rebound from last month’s two-year low of 52.2. Expectations are for a modest uptick to 53.4, which could influence short-term sentiment around the US Dollar.
Policy Outlook: Fed Rate Expectations and USMCA Talks
Market sentiment around the Federal Reserve remains cautious. Traders at the Chicago Board of Trade (CBOT) have adjusted expectations to two rate cuts in 2025, down from earlier projections of three. The December 2025 Fed funds futures suggest about 54 basis points of easing priced in.
In Mexico, Economy Minister Marcelo Ebrard announced that the USMCA trade agreement review is scheduled to begin in the second half of 2025—a key event that could shape Mexico’s trade and investment landscape in the coming years.
USD/MXN Technical Outlook: Key Resistance at 19.50
Technically, USD/MXN continues to edge higher, buoyed by Banxico’s dovish tone. The pair is testing resistance at the 19.50 level, and a sustained close above this threshold could expose the 19.66 zone, near the 20-day Simple Moving Average (SMA).
On the downside, a rejection from current levels could reopen the path toward the 19.00 psychological support level. A break below that would place the August 2024 swing low of 18.59 in focus.
For now, the Peso remains vulnerable as the interest rate differential narrows and Banxico keeps the door open for more aggressive easing in the months ahead.
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