The Mexican Peso (MXN) is facing declines against key currency pairs on Friday, grappling with political risk premiums, economic outlook concerns, and technical factors favoring short positions. The Peso depreciated for the second consecutive day on Thursday, reflecting ongoing domestic challenges that are eroding investor confidence.
Recent reforms impacting the judiciary, the elimination of autonomous regulatory bodies, and the precarious state of public finances—including issues surrounding state-owned enterprises like Pemex—are contributing to the Peso’s struggles.
Market expectations suggest that the Bank of Mexico will lower interest rates by 25 basis points, from 10.75% to 10.50%, at its upcoming meeting. While this cut is less significant than the Federal Reserve’s recent 50 basis point reduction, lower rates generally deter foreign capital inflows, adding pressure to the currency.
On Thursday, the Peso experienced the largest losses against the Pound Sterling (GBP) and the Euro (EUR). Both of these currencies’ central banks are anticipated to adopt a more cautious approach to rate cuts compared to the Fed. The Bank of England (BoE) decided to maintain its interest rates amid persistently high core inflation, while expectations of ongoing wage inflation in the Eurozone are likely to keep the European Central Bank (ECB) from aggressive rate reductions.
The USD/MXN pair is finding technical support at the lower boundary of a long-term rising channel, showing signs of a gradual recovery. Although the pair experienced a sharp decline last week, it has received key support from this channel and the 50-day Simple Moving Average, just above the 19.00 mark, which has thus far prevented a deeper downturn.
