Mexican Peso recovers ground against US Dollar despite Mexico’s weaker Retail Sales, risk-off impulse


  • Mexican Peso exchange rate with the US Dollar remains on the defensive, printing more than 1% weekly losses.
  • August Retail Sales in Mexico show a mixed picture, with gains over the year but a monthly plunge and signs of deceleration.
  • Geopolitical risks cap Peso’s gains, including tensions in the Middle East and US military base attacks.

Mexican Peso (MXN) registers solid gains against the US Dollar (USD) at the end of the week, though it remains printing weekly losses of more than 1%, as risk-aversion took its toll against risk-perceived currencies in the Forex markets. On Friday, the USD/MXN was trading at around 18.24, down 0.40%, although Retail Sales from Mexico showed the economy has been hit by higher interest rates set by the Bank of Mexico (Banxico).

Mexico’s National Statistic Agency, known as INEGI, revealed August Retail Sales plunged on monthly figures but expanded on a yearly basis, though showing signs of a deceleration. Comments made by the US Federal Reserve (Fed) Chair Jerome Powell, however, on Thursday suggest the US central bank might keep rates unchanged at the upcoming November meeting, keeping the door open for December’s meeting. The overall effect of Powell’s speech was some short-term weakness for the Dollar.

In the meantime, geopolitical risks remain high as Israel continues its offensive against Hamas. At the same time, the United States (US) said its military bases in Iraq and Syria are increasingly coming under attack.

Daily Digest Market Movers: Mexican Peso counterattacks as the pair drops below 18.30

  • Mexico’s August Retail Sales plunged -0.4% MoM, missing estimates of 0%, while annually expanding by 3.2%. This was below forecasts of 4.4% and trailed July’s 5.1%.
  • IOAE portrays the Mexican economy growing at a 3.12% YoY pace.
  • US Initial Jobless Claims for the week ending October 14 rose by 198K, below estimates and previous week data, each at 212K and 211K, respectively.
  • US Existing Home Sales rose by 3.96M in September, below August’s 4.04M, a -2% contraction.
  • US Building Permits plummeted -4.4% in September, compared to last month’s 6.8% increase.
  • Housing Starts for the same period previously mentioned rose by 7%, exceeding August’s -12.5% drop.
  • Mexico’s GDP in 2023 is expected to hit 3.2%, according to the World Bank and the International Monetary Fund.
  • Mexico’s Industrial Production (IP) for August improved by 5.2% YoY, exceeding forecasts of 4.6% and July’s 4.8% increase.
  • Monthly, IP in Mexico rose 0.3%, as expected, but trailed the previous 0.5% reading.
  • Mexico’s Consumer Price Index (CPI) grew by 4.45% YoY in September, slightly below the 4.47% estimated.
  • The core CPI inflation in Mexico stood at a stickier 5.76% YoY, as widely estimated, but has broken below the 6.00% threshold.
  • The Bank of Mexico (Banxico) held rates at 11.25% in September and revised its inflation projections from 3.50% to 3.87% for 2024, above the central bank’s 3.00% target (plus or minus 1%).

Technical Analysis: Mexican Peso strengthens, as USD/MXN buyers eye a pullback before next leg-up

The USD/MXN is upward biased, though the ongoing rally was capped short of testing the latest cycle high, the October 6 high, of 18.48, which opens the door for a pullback.

The exotic pair could drop toward 18.00 before testing the 20-day Simple Moving Average (SMA) at 17.91. A drop below that could put at risk the uptrend, as the bull’s latest line of defense is likely to be the 200-day SMA at 17.74.

On the other hand, if the pair aims higher and buyers reclaim 18.48, that would put the 18.50 figure into play, followed by the 19.00 mark.

Mexican Peso FAQs

The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.

The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.

Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.

As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.