- Mexican peso erases losses versus US Dollar as it joins to the rally of Latam currencies.
- Mexico: Central bank lowers GDP and rises inflation forecast.
The USD/MXN pair retreat sharply from the highest level in almost two weeks, near the 19.30 and dropped sharply, as the Mexican peso joined the rally of Latin American currencies against the greenback. The US Dollar rose versus majors and emerging market currencies, but dropped versus MXN, ARS, BRL, TRY and COP.
Earlier today, USD/MXN broke above the 19.20 resistance area and jumped to 19.28, reaching the strongest since May 9. During the American session, the pair turned to the downside and over the last hours accelerated. It bottomed at 19.13 and as of writing trades at 19.15, marginally lower for the day but far from the highs.
The pair continues to move between the 19.30 and 18.90, as it has been the case since the beginning of the month. Today it lost strength near the top and pulled back. Still, some bullish momentum is seen but the decline below 19.20 weakened the greenback.
Banxico lowers growth forecasts
The Bank of Mexico released the quarterly inflation report and tomorrow the minutes from its latest monetary policy meeting. The economic activity outlook for 2019 has been revised lower from expected growth of between 1.1 and 2.1% to 0.8 and 1.8%; for 2020 (unchanged) between 1.7 and 2.7%. Inflation forecasts for annual headline are adjusted slightly upwards, due to higher expected energy prices arising from the dynamics in their international references, and to the recent increases in core inflation. They see a convergence to the target in the third quarter of 2020.
More from the Quarterly Inflation report:
“The Mexican economy has registered a significant reduction in financing from external sources, which has been partly offset by an increase in domestic financing sources and a lower absorption of resources by the public sector. External accounts have reverted their medium-term trend, currently showing a surplus in the non-oil trade balance and a deficit in the oil trade balance.”
“Risks to core inflation are still perceived. In April, it increased and within its components, food merchandise prices have been increasing while several services have registered high inflation levels. Thus, although core inflation decreased in the first fortnight of May, it remains at high levels.”
“The adjustment for 2019 mainly reflects that the economy’s performance during the first quarter of 2019 was weaker than expected which, as mentioned, is partly associated with the effects of several transitory factors. In the same vein, although the economy is expected to resume its growth path, driven by positive contributions from both domestic and external demand, the latter could decelerate at a higher rate than expected due to a moderation in global economic growth and, particularly, in US industrial production. Additionally, any recovery in investment is foreseen to be gradual.”
“The upward adjustment of annual core inflation forecasts is largely due to evolution of the prices of housing services and services other than housing and education, which have registered higher levels than those foreseen. Such evolution may be associated with possible cost-related pressures, including the increases in fuel prices and the higher increases in wages. Nevertheless, core inflation is still expected to reach the 3% target in the second quarter of 2020.”
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