Mexican Peso Strengthens Against Dollar Following US Inflation Report and Trade Truce

The Mexican Peso continued its upward momentum against the US Dollar on Wednesday morning, with the USD/MXN pair trading at 19.4110, down 0.06% from Tuesday’s close of 19.4230.

TradingView charts confirm this downward pressure as the pair broke below key technical supports during early trading hours. Yesterday’s softer-than-expected US inflation data catalyzed significant peso gains.

April’s US Consumer Price Index rose just 0.2% month-over-month, falling short of the 0.3% consensus forecast. Annual headline inflation cooled to 2.3%, marking its slowest pace since February 2021 and beating the anticipated 2.4% figure.

Market participants rapidly adjusted their Federal Reserve rate cut expectations following the inflation report. Traders now anticipate two Fed rate cuts by year-end, narrowing the dollar’s yield advantage against emerging market currencies including the peso.

The recent US-China trade truce further bolstered risk sentiment across global markets. This 90-day suspension of escalating tariffs features the US cutting duties on Chinese imports from 145% to 30%, while Beijing reciprocates by lowering tariffs on US goods from 125% to 10%.

Technical indicators suggest continued peso strength may lie ahead. The USD/MXN pair now trades well below its 20-day exponential moving average. The Relative Strength Index hovers around 39, indicating bearish momentum remains intact but not yet oversold.

Mexican Peso Eyes Further Gains

The chart reveals a pronounced downtrend since late April when prices peaked above 20.90. The pair has established lower highs and lower lows throughout early May.

Support now sits at 19.3860, with more substantial backing at 19.00 should downward momentum accelerate. Trading volumes reached 3.5 million contracts during yesterday’s session, reflecting heightened market activity amid volatility.

Institutional positioning shows increased long peso positions as traders anticipate further dollar weakness. Attention now shifts to tomorrow’s Bank of Mexico (Banxico) monetary policy decision.

Analysts widely expect Banxico to implement its seventh consecutive rate cut of 50 basis points, bringing the benchmark rate to 8.50%. This policy divergence from the Fed traditionally pressures the peso.

Mexico’s economic fundamentals display resilience despite tightening monetary conditions. Industrial production rose 1.9% year-on-year in March, while Q1 GDP expanded a modest 0.2%, narrowly avoiding technical recession.

Oil prices influence peso valuation given Mexico’s significant petroleum exports. Recent crude stabilization near $75 per barrel provides moderate support for the currency.

Traders should monitor tomorrow’s Banxico decision and upcoming US economic data releases for clues about near-term currency direction. The technical picture suggests scope for further peso appreciation, with the 19.00 psychological level representing the next major target.

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