USD/MXN holds gains near 18.70, extends recovery due to stronger US Dollar
- USD/MXN continues to recover after bouncing back from 18.66, its lowest level since August 2024.
- The Mexican Peso faces challenges following the disappointing economic data.
- The US Dollar appreciates due to the signs of US manufacturing activity improved in June.
USD/MXN edges higher for the second successive day, extending its recovery slightly after rebounding from 18.66, the lowest since August 2024, which was recorded on July 1. The pair is trading around 18.70 during the European hours on Wednesday.
The upside of the USD/MXN pair could be attributed to the weaker Mexican Peso (MXN), driven by the latest disappointing economic data from Mexico. Real Retail Sales came in at flat 0% year-over-year in May, against the expected 0.8% rise and 0.9% previous reading.
Mexico's S&P Global Manufacturing Purchasing Managers Index (PMI) declined to 46.3 in June, compared to the previous reading of 46.7. The reading marked the weakest quarterly average since early 2021, highlighting a sharp decline in new orders as companies cited sluggish demand, project delays, and the effects of US tariffs.
The USD/MXN pair appreciates as the US Dollar (USD) gains ground, driven by the signs that economic activity in the United States (US) manufacturing sector improved in June. The US ADP Employment Change report for June will be in the spotlight later on Wednesday.
On Tuesday, the Institute for Supply Management’s (ISM) report showed that US Manufacturing PMI climbed to 49.0 from 48.5 in May, surpassing the market expectations of 48.8. Moreover, US JOLTS Job Openings rose to 7.76 million in May, compared to 7.395 million openings reported in April. This figure came in above the market expectation of 7.3 million.
Mexican Peso FAQs
The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.
The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.
Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.
As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
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