Bank of Mexico, US Dollar, Mexican Peso, USD/MXN, Federal Reserve – Talking Points
- Bank of Mexico raises rates by 50 basis points
- USD/MXN relatively unchanged on Banxico rate hike
- Inflation continues to weigh on emerging markets
The Bank of Mexico decided to raise the country’s benchmark interest rate by 50 basis points on Thursday, bringing the overnight rate to 6%. The rate hike was in line with street expectations as the country battles runaway inflation. 4 board members voted for a hike to 6%, with only one member voting for a 25 basis point hike to 5.75%.
The Bank said inflationary pressures continue to be strong and are lasting longer than initially expected. Headline and core inflation forecasts have been revised upwards, with policymakers pointing out that the balance of inflation risks remains skewed to the upside. Mexico, like its emerging market counterparts, continues to suffer from supply chain inefficiencies, with inflation in January up 7.07% year-on-year and 0.59% month-on-month. other.
USD/MXN daily chart
Chart created with TradingView
Despite the rate hike, USD/MXN remained relatively unchanged on the rate decision. The pair saw more volatility around Thursday’s US CPI release, which saw USD/MXN drop towards the 200-day moving average (MA) before recovering. Upside potential remains capped by a descending trendline that has kept prices in check since mid-January. Price remains supported by the 200-day MA and may look to retest overhead resistance as we inch closer to that pivotal Fed meeting in March.
Given the lack of movement following Banxico’s decision, market participants may only be focused on the USD side of the equation ahead of the March policy meeting. Thursday’s hot CPI print in the US saw expectations of a 50 basis point hike by the Fed soar. If the Fed were to raise rates by 0.50%, it would be the first move of this magnitude since 2000.
It should be noted that the St. Louis Fed’s James Bullard said in comments Thursday afternoon that the Fed should consider rate hikes between policy meetings. The comments took the markets by surprise, with the USD in bid and US equities paring the morning session gains. It looks like the table is set for a stronger USD over the next few months, which could see USD/MXN break out of its multi-week downtrend.
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— Written by Brendan Fagan, intern
Contact Brendanuse the comments section below or @BrendanFaganFX on Twitter
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