Mexican Peso edges lower ahead of release of Banxico Minutes

---

• 
  The
  Mexican
  Peso
  trades
  lower
  in
  its
  key
  pairs
  ahead
  of
  the
  release
  of
  Banxico’s
  June
  meeting
  Minutes. 
• 
  Uncertainty
  over
  the
  trajectory
  of
  future
  monetary
  policy
  in
  Mexico
  is
  making
  traders
  hesitant
  to
  place
  bets. 
• 
  The
  Peso
  weakens
  the
  most
  against
  the
  Pound
  after
  the
  release
  of
  better-than-expected
  UK
  GDP
  data. 

The
Mexican
Peso
(MXN)
trades
mixed
in
its
key
pairs
on
Thursday
–
rising
versus
the
US
Dollar
(USD)
but
falling
against
the
Pound

Sterling
(GBP)
and
the
Euro
(EUR).
MXN’s
weakness
versus
the
Pound
can
be
attributed
to
the
release
of
better-than-expected
UK
Gross
Domestic
Product
(GDP)
data
for
May,
which
came
out
at
0.4%
month-over-month,
roundly
beating
economist’s
estimates
of
0.2%. 

Traders
are
also
hesitating
ahead
of
the
release
of
the
Minutes
of
the
Bank
of
Mexico’s
(Banxico)
last
policy
meeting.
Uncertainty
regarding
the
trajectory
of
interest
rates
has
increased
after
the
release
of
higher-than-expected
headline
Mexican
inflation
data
for
June.
The
impact
of
the
Peso’s
devaluation
following
the
June
election
and
the
imported
disinflation
thus
anticipated,
are
further
factors
complicating
the
outlook.  

At
the
time
of
writing,
one
US
Dollar
(USD)
buys
17.86
Mexican
Pesos,
EUR/MXN
trades
at
19.37,
and
GBP/MXN
at
23.00.

Mexican
Peso
lower
ahead
of
Banxico
Minutes 

The
Mexican
Peso
is
edging
down
on
Thursday
after
rallying
for
roughly
the
last
nine
days
–
especially
against
the
US
Dollar.
Traders
are
wary
of
placing
bullish
bets
ahead
of
the
release
of
the
Minutes
of
Banxico’s
June
meeting,
scheduled
for
15:00
GMT. 

The
Minutes
ought
to
provide
more
information
on
the
Banxico’s
stance
in
terms
of
the
economy
and
the
direction
of
future
policy.
These,
in
turn,
could
influence
the
Peso.

“We
expect
the
minutes
to
elaborate
on
both
disinflation
forces
and
some
of
the
upside
risks
embedded
in
the
ongoing
MXN
re-adjustment,
and
the
forces
behind
growth
disappointments,”
say
analysts
at
JP
Morgan. 

Banxico’s
board
is
expected
to
acknowledge
the
“underwhelming
growth
dynamics
and
downgrade
its
growth
outlook
—
now
openly
underscoring
downside
risks
to
economic
activity,”
they
added. 

If
accurate,
JP
Morgan’s
preview
suggests
the
Peso
is
at
risk
of
weakening
following
the
release,
since
a
downgrade
in
the
growth

outlook
will
put
more
pressure
on
Banxico
to
cut
interest
rates
despite
the
above-consensus
rise
in
the
June
headline
inflation
data.
Lower
interest
rates
are
negative
for
a
currency
as
they
reduce
foreign
capital
inflows. 

Mixed
reaction
to
inflation
data
causes
uncertainty

The
12-month
inflation
rate
in
June
came
out
at
4.98%,
which
was
higher
than
the
4.84%
expected
by
economists
and
the
4.69%
previously,
according
to
data
from
INEGI.

Banxico
Deputy
Governor
Jonathan
Heath
wrote
on
X
that
June’s
inflation
data
was
“very
worrying.”
Heath
is
seen
as
a
monetary
“hawk”
of
the
Banxico
board
–
in
favor
of
higher
interest
rates
–
similar
to
Deputy
Governor
Irene
Espinosa.

“Headline
inflation
reached
4.98%
in
June,
the
highest
inflation
rate
in
the
last
12
months.
On
the
margin,
the
annual
rate
for
the
second
half
of
June
registered
5.17%.
Very
worrisome,”
wrote
Heath. 

This
comes
after
Heath’s
comments
comparing
his
stance
to
that
of
the
Chairman
of
the

Federal
Reserve,
Jerome
Powell,
in
terms
of
its
data
dependency.
The
effect
of
his
words
was
to
lower
rate-cut
bets
and
further
fuel
the
rally
in
the
Peso. 

Deputy
Governor
of
the
Bank
of
Mexico
Galia
Borja
urged
caution
in
recent
remarks. 

“It’s
prudent
not
to
make
hasty
decisions”
regarding
monetary
policy,
Borja
said,
adding
that
officials
must
be
patient
and
current
policy
was
“undoubtedly
restrictive.”

Slowdown
in
core
inflation
could
be
key
–
Capital
Economics

Whilst
headline
inflation
in
Mexico
rose
in
June,
core
inflation,
which
excludes
volatile
food
and
energy
components,
came
out
below
expectations
at
0.22%,
when
economists
had
estimated
0.24%.
Nevertheless,
the
June
reading
was
above
the
0.17%
in
May. 

The
slower
increase
in
core
inflation,
however,
makes
economists
at
Capital
Economics
less
concerned
about
the
rise
in
headline
inflation. 

“Core
inflation
edged
down
last
month.
While
there’s
still
a
lot
of
uncertainty
around
the
next
rate
decision
in
August,
we
think
that
the
easing
of
core
price
pressures,
alongside
the
weak
run
of
activity
data
and
the
rebound
in
the
Peso
leave
an
August
rate
cut
in
play,”
says
Kimberley
Sperrfechter,
Emerging
Markets
Economist
at
Capital
Economics. 

Assuming
Banxico
does
go
ahead
and
cut
interest
rates
in
August,
this
could
have
a
negative
impact
on
the
Peso. 

Technical
Analysis:
USD/MXN
possible
in
ABC
correction

USD/MXN
is
possibly
falling
in
the
wave
C
of
an
ABC
correction
that
started
after
the
June
12
high.
The
short-term
trend
is
bearish,
and
given
“the
trend
is
your
friend”
the
odds
favor
more
downside.  

USD/MXN
Daily
Chart 

USD/MXN
has
broken
support
at
the
17.87
(June
24
low),
however,
the
break
was
not
decisive,
indicating
the
possibility
it
may
be
false
and
the
pair
could
recover. 

USD/MXN
has
also
fallen
to
the
conservative
target
for
wave
C,
which
is
measured
by
taking
the
0.618
Fibonacci
ratio
of
wave
A
as
a
guide
since
C
is
often
equal
to
A
or
a

Fibonacci
ratio
of
it.
Given
that
the
pair
has
reached
this
lesser
target,
there
is
a
further
risk
of
a
recovery
evolving. 

If
USD/MXN
breaks
below
Wednesday’s
low
at
17.76,
however,
it
would
reinvigorate
bears
and
probably
lead
to
a
move
down
to
the
target
at
the
end
of
wave
C,
at
roughly
the
level
of
the
50-day
Simple
Moving
Average
(SMA)
situated
at
17.60. 

Meanwhile,
the
direction
of
the
medium
and
long-term
trends
remain
in
doubt.