Mexican Peso retreats again after three-day recovery

The Mexican Peso trades slightly lower on Monday after a mild recovery. 

The Peso gained as the effect of the Trump-trade wore off, Banxico upgraded its forecasts, and Mexico made a budget announcement. 

USD/MXN could be starting a new leg higher after pulling back within its uptrend. 

The Mexican Peso (MXN) edges lower in its key pairs on Monday after three consecutive days of mild gains. These came partly on the back of revised forecasts by the Bank of Mexico (Banxico) at its November meeting on Thursday, an optimistic budget announcement from Mexico’s Economy Minister on Friday, and as the waning bullish effect of the “Trump-trade” on the US Dollar (USD). Despite the Peso’s three-day rebound, MXN is in a technical downtrend overall, suggesting vulnerabilities could lurk just out of sight. 

Mexican Peso recovery looks vulnerable 

The Mexican Peso slightly retreats on Monday after a weak recovery in the second half of last week after Banxico revised its forecast for inflation at the end of 2024 to 4.7% from 4.3%. The change suggests the central bank will probably not cut interest rates as aggressively as previously expected, propping up the Peso. The maintenance of elevated interest rates increases capital inflows into a country, supporting its currency. 

Nevertheless, Banxico went ahead with a 25 basis points (bps) (0.25%) cut at its policy meeting on Thursday, bringing its main interest rate down to 10.25% from 10.50% previously. The bank  continued to see the balance of risks “to growth of economic activity remained biased to the downside.”