USD/MXN rises to 2-week high as Mexico inflation spikes

on Jul 8, 2021
  • The USD/MXN pair rose on Thursday even after the strong Mexico inflation data.
  • The headline CPI rose by 5.88% in June after rising by 5.89% in May.
  • The pair rose as US bond yields declined to the lowest level since January.

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The USD/MXN pair jumped on Thursday as part of the overall emerging market currencies rally. The pair rose to 20.1600, which was 2.3% above the lowest level on June 25.

Mexican peso rises

The Mexican peso joined other emerging market currencies like the South African rand and Brazilian real in declining. The MSCI Emerging Market Index declined by more than 0.25%. Interestingly, this decline happened on the same day that the US dollar index declined by more than 0.15%.

The Mexican peso declined because of the performance of US Treasury yields. The benchmark 10-year yield declined by 1.251% while the 30-year yield fell to 1.859%. This happened as fears of inflation in the United States eased. 

The USD/MXN pair also rose even after the relatively strong Mexican inflation data. According to the country’s statistics bureau, the headline Consumer Price Index (CPI) more than doubled from 0.20% to 0.53%. This increase was better than the median estimate of 0.51%. 

The Mexican inflation rose by 5.88% on a year-on-year basis. Analysts were expecting the CPI to increase by 5.86%. Further, the core CPI increased from 0.53% to 0.57%, better than the expected 0.56%. This inflation is above the Banxico target of 4.0%

According to the Mexican statistics agency, the price of intermediate-use goods and services increased by 0.97% on a MoM basis and by 10.69% on a YoY basis. The index of final goods and services rose by 0.92%.

Therefore, these numbers will likely put pressure on the Mexican Central Bank. The bank has left interest rates unchanged in the past three meetings. It is also expected to maintain rates at the current level in the next few meetings. Still, the governor has not ruled out tightening later this year.

USD/MXN technical analysis

USD/MXN technical chart

The USD/MXN pair rose to a high of 20.1600, which was the highest it has been since June 24. The pair managed to move above the 25-day and 15-day moving averages (MA). It also moved above the important resistance at 20.0830, which was the highest level on July 1. This price was also the neckline of the double-bottom pattern whose lower side is at 19.71.

Therefore, there is a possibility that the pair will keep rising as bulls target the next key resistance level at 20.3283. On the flip side, a move below the support at 19.90 will invalidate this bullish view.