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USD/MXN remains steady below 19.75 after Banxico cut rates

  • Bank of Mexico lowers rate by 25bp points to 8.00%.  
  • Mexican peso remains steady against the US Dollar, close to monthly lows.  

The USD/MXN pair rose to test weekly highs at 19.75 and then pulled back following the release of the statement from the Bank of Mexico. As of writing trades at 19.60, modestly lower for the day.  

The Mexican peso, as most Emerging market currencies are higher today against the US Dollar posting modest gains as Wall Street and other equity markets stabilize following yesterday’s losses.  

Despite moving off highs, USD/MXN still holds a bullish bias but it needs to break and hold on top of 19.80, to clear the way to more gains and signal a test of 20.00. On the flip side, the immediate support could be seen around the 19.60 area, and below at 19.30/35. A close below the last one would strengthned the Mexican peso.  

Banxico cut interest rate, no major surprise  

“Banco de México’s Governing Board has decided to lower the target for the overnight interbank interest rate by 25 basis points to 8.00%”, opens up the statement from Banxico. It was seen keeping rates on hold, but the cut represents no surprise as the Mexican economy is practically stagnated and inflation continues to trend lower.  

Taking into account headline inflation has decreased as foreseen, the greater than expected widening in the amount of slack in the economy, and the recent behavior of the external and domestic yield curves at various terms, Banxico decided to cut the overnight interest rate 25 basis points to 8.00%, “considering that under the current environment such level is consistent with the convergence of headline inflation to the central bank’s target within the time frame in which monetary policy operates.”  

The decision was not unanimous. One member voted to keep rates unchanged. It was the first cut since June 2014.  

 

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