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Mexican Peso Firms as USD/MXN Falls on Central Bank Divergence

The Mexican Peso (MXN) strengthened against the US Dollar (USD) on Friday, with USD/MXN declining below key support after the recent contrasting interest rate decisions by the Federal Reserve (Fed) and the Bank of Mexico (Banxico).

Key Factors:

  • Fed Holds, Banxico Cuts: While the Fed held rates steady, Banxico’s rate cut and a potentially less hawkish stance weakened the USD/MXN.
  • Economic Data: Mixed Mexican figures, including a January economic contraction and elevated inflation, had limited impact.
  • Shrinking Rate Differential: Banxico’s rate cut narrowed the interest rate gap between Mexico and the US, potentially easing pressure on the MXN.

Technical Outlook:

  • Bearish Momentum: The USD/MXN decline suggests buyers are losing steam, potentially targeting lows not seen since 2015.
  • Key Support Levels: Potential downside targets include 16.64 (YTD low), 16.62 (last year’s low), and 16.32 (October 2015 low).
  • Bullish Case: A break above the week’s high of 16.94 could signal a shift, with resistance at the 50, 100, and 200-day SMAs.