The Mexican Peso (MXN) reached a 25-month high against the US Dollar (USD), with the USD/MXN pair trading at 17.08, a level last seen in June 2024, as the market awaits the release of US July inflation figures [1]. The Peso posted solid gains of 0.32% against the USD by the end of Tuesday’s session, driven by stronger-than-expected Mexican industrial output and growing hopes that the US Federal Reserve (Fed) will pause rate hikes [1].
Mexico’s Industrial Output for June improved from a 0.8% contraction to a 0.2% increase, although this was slightly below the forecast of 0.3%. On a year-over-year basis, output rose by 1.7%, surpassing both the forecasted 1.1% increase and May’s -0.7% print [1]. This positive data contributed to the Peso’s strength, although traders were cautious about pushing the exchange rate below the 17.00 mark ahead of the US inflation release [1].
Expectations for the US Consumer Price Index (CPI) indicate a slight decline in headline inflation from 3.5% to 3.4% year-over-year, with core inflation also expected to slow from 2.6% to 2.5% for the twelve months ending in July [1]. A softer-than-expected inflation print could further benefit the Peso, as it would reduce the likelihood of additional Fed rate hikes and maintain a favorable interest rate differential for the MXN [1].
The US Dollar Index (DXY) was reported at 99.80 after touching a two-month low of 99.40, reflecting broader USD weakness [1]. According to the Citi Mexico expectations survey, all analysts anticipate that the Bank of Mexico’s (Banxico) key policy rate will remain steady at 6.50% through year-end, with a median forecast for the USD/MXN exchange rate to close 2024 at 17.90 [1].
Technical analysis shows USD/MXN trading at 17.0688, below key moving averages and a descending trend-line resistance near 17.4359. The Relative Strength Index (RSI) at 29.4 signals oversold conditions, suggesting bearish momentum remains dominant unless the pair recovers above the 17.40–17.44 resistance zone [1].
CONCLUSION
The Mexican Peso’s rally to a 25-month high is underpinned by improved domestic industrial output and expectations of a dovish Fed stance. Market participants are closely watching upcoming US inflation data, which could further influence the USD/MXN trajectory and reinforce the Peso’s strength if inflation prints softer than expected.