Mexican Peso rises on hot inflation data, Banxico turns vigilant

• 
  Mexican
  Peso
  strengthens
  for
  seventh
  session
  with
  USD/MXN
  down
  0.44%,
  sparked
  by
  high
  inflation.
• 
  Banxico
  Deputy
  Governor
  Borja
  adopts
  neutral
  stance,
  despite
  emphasizing
  that
  policy
  is
  restrictive.
• 
  Banxico’s
  minutes
  to
  address
  disinflation
  forces,
  growth
  disappointments,
  and
  potential
  downside
  risks
  in
  upcoming
  meeting.

The
Mexican
Peso
extended
its
rally
for
the
seventh
consecutive
session
on
Wednesday
after
inflation
got
close
to
5%,
which
might
deter
the
Bank
of
Mexico
(Banxico)
from
easing
policy
at
the
upcoming
monetary
policy
meeting
in
August.
Therefore,
the
USD/MXN
continued
to
edge
lower
and
traded
at
17.83,
a
loss
of
0.44%.

Mexico’s
inflation,
as
measured
by
the
Consumer
Price
Index
(CPI),
was
higher
than
expected
in
June,
hitting
4.98%,
above
estimates
of
4.84%.
This
triggered
a
reaction
amongst
Banxico’s
policymakers
with
Deputy
Governor
Jonathan
Heath
writing
on
X
that
June’s
inflation
data
was
“very
worrying.”

Recently,
Deputy
Governor
Galia
Borja
said,
“It’s
prudent
not
to
make
hasty
decisions”
regarding
monetary
policy.
She’s
adopted
a
more
neutral
stance,
adding
that
officials
must
be
patient,
though
she
added
that
the
current
policy
is
“undoubtedly
restrictive.”

On
Thursday,
Banxico
will
reveal
its
latest
monetary
policy
minutes.
Analysts
at
JP
Morgan
wrote,
“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.”

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

Across
the
border,

Federal
Reserve
(Fed)
Chair
Jerome
Powell
appeared
at
the
US
House
of
Representatives
and
repeated
some
of
Tuesday’s
words
that
the
disinflation
process
is
evolving
and
that
the
risks
of
achieving
the
dual
mandate
have
become
more
balanced.
He
added
that
Fed
officials
needed
good
inflation
data
to
lower
borrowing
costs
and
that
neutral
rates
must
have
moved
up
“at
least
in
the
short
term.”

Daily
digest
market
movers:
Mexican
Peso
rockets
due
to
high
inflation

• According
  to
  the
  National
  Statistics
  Agency
  (INEGI),
  Mexico’s
  June
  inflation
  figures
  were
  higher
  than
  expected
  due
  to
  a
  rise
  in
  food
  prices
  when
  most
  economists
  expect
  Banxico
  to
  resume
  lowering
  interest
  rates.
• Mexico’s
  CPI
  rose
  from
  4.69%
  YoY
  to
  4.98%
  in
  June,
  while
  core
  CPI
  dipped
  from
  4.21%
  to
  4.13%
  annually,
  exceeding
  the
  estimated
  4.15%.
• Despite
  the
  rise
  in
  inflation,
  Capital
  Economics
  analysts
  estimate
  that
  the
  Mexican
  central
  bank
  could
  cut
  rates
  at
  the
  August
  meeting.
• On
  Monday,
  the
  New
  York
  Federal
  Reserve
  revealed
  that
  consumer
  inflation
  expectations
  were
  lowered
  from
  3.2%
  to
  3%
  for
  one
  year.
• US
  CPI
  is
  foreseen
  dropping
  from
  3.3%
  to
  3.1%
  in
  the
  12
  months
  to
  June,
  while
  underlying
  inflation
  is
  projected
  to
  stay
  firm
  at
  3.4%
  YoY.
• US
  Dollar
  Index
  (DXY),
  which
  tracks
  the
  value
  of
  a
  basket
  of
  six
  currencies
  against
  the
  US
  Dollar,
  advances
  some
  0.16%
  and
  is
  up
  at
  105.17.
• According
  to
  the
  CME
  FedWatch
  Tool
  data,
  the
  odds
  for
  a
  September
  cut
  are
  72%,
  up
  from
  70%
  on
  Tuesday.

Technical
analysis:
Mexican
Peso
appreciates
sharply
as
USD/MXN
falls
below
17.85

The
USD/MXN
continued
to
extend
its
losses
past
June
24,
the
latest
cycle
low
of
17.87,
which
could
pave
the
way
for
a
deeper
correction.
Momentum
has
abruptly
shifted
in
bears’
favor,
an
indication
that
sellers
will
drive
the
exotic
pair
price
action
lower.

If
the
downtrend
continued,
the
next
support
would
be
the
confluence
of
the
December
5
high
and
the
50-day
Simple
Moving
Average
(SMA)
at
around
17.56/57,
followed
by
the
200-day
SMA
at
17.26.
The
next
floor
level
would
be
the
100-day
SMA
at
17.19.

For
a
bullish
resumption,
USD/MXN
must
surpass
18.10,
followed
by
a
rally
above
the
June
28
high
of
18.59,
allowing
buyers
to
challenge
the
YTD
high
of
18.99.
Conversely,
sellers
will
need
to
push
the
pair
below
18.00,
which
could
extend
the
decline
toward
the
December
5
high-turned-support
at
17.56,
followed
by
the
50-day
SMA
at
17.37.