Mexican Peso gains as US PCE softens, consumer sentiment in focus
- USD/MXN falls below the 19.30 psychological level after US PCE inflation softened in April.
- The Mexican Peso benefits from moderating inflation in the US, adding to US Dollar weakness.
- Focus shifts to the University of Michigan Consumer Sentiment index as investors look for signs of economic resiliency and consumer confidence.
The Mexican Peso (MXN) is strengthening against the US Dollar (USD) in the early hours of the American session on Friday after the release of soft inflation data in the United States, with the pair remaining vulnerable to broader geopolitical risks.
At the time of writing, USD/MXN trades below the psychological level of 19.30, with US interest rate expectations and risk sentiment surrounding tariffs continuing to drive price action.
US PCE data adds a dovish tone to the Fed’s stance
The US Personal Consumption Expenditures (PCE) Price Index for April could provide a dovish tilt for the future trajectory of US interest rates. April’s data, released at 12:30 GMT, printed in line with forecasts, with a MoM reading of 0.1%, increasing slightly after remaining unchanged in March. However, the year-over-year (YoY) figure of 2.1% reflected a moderate deceleration from the prior 2.3%. Meanwhile, the core PCE rose 2.5% in April, compared with the 2.7% seen in the prior month.
As the Federal Reserve’s (Fed) preferred inflation measure, the report is closely watched by policymakers, investors, and global currency markets. With inflation trends guiding expectations on the future path of interest rates, the data shows that price pressures are easing.
In Mexico, the Jobless Rate for April, released at 12:00 GMT, printed at 2.5%, in line with analyst forecasts, despite a rise from 2.2% in March. Employment trends serve as a leading indicator of economic growth.
Later in the session, the University of Michigan Consumer Sentiment Index will offer further insight into US household expectations and perceived economic conditions.
As another key leading indicator, the sentiment reading could influence risk appetite and global positioning, particularly if it surprises relative to forecasts.
Mexican Peso daily digest: USD/MXN extends losses as PCE data eases inflation concerns
- The US federal appeals court temporarily halted a federal trade court’s decision to block most of US President Donald Trump’s tariffs on Thursday, after the lower federal court rejected the legal foundation of the proposed blanket tariff.
- On Thursday, Chicago Fed President Austan Goolsbee said the uncertainty surrounding Trump’s tariff proposals is already having an economic impact, stating: “If people can’t count on consistent policy, then they’re just going to slow down and not act.” Goolsbee added that if tariffs are avoided “by a deal or otherwise,” it could open the door for the Federal Reserve to lower interest rates.
- The Banxico Minutes from the May Meeting on Thursday showed that most members see downside risks to economic activity; all members flagged concerns over US trade policy uncertainty. This reinforces a dovish bias from the central bank, with more easing potentially on the table.
- On Wednesday, Banxico’s Quarterly Report revealed that the central bank slashed its 2025 Gross Domestic Product (GDP) growth forecast to 0.1% from 0.6%, citing rising domestic recession risks. Market attention turns to policy calibration amid deteriorating growth outlook.
- The Minutes from the May Federal Open Committee (FOMC) meeting were released on Wednesday. In the report, Fed officials emphasized increased uncertainty and supported a cautious approach.
- USD/MXN remains highly sensitive to such data surprises, especially when they carry implications for monetary policy or broader global sentiment. Price action is likely to be reactive, with potential for sharp swings should actual data deviate from expectations.
Mexican Peso technical analysis: USD/MXN retreats from Moving Average resistance
USD/MXN has pulled back below the 19.30 psychological level, after failing to break above the 20-day Simple Moving Average (SMA) at 19.43 on Thursday.
The pair is now hovering near the 10-day SMA at 19.30. A definitive break below this level could see renewed selling pressure, with bears targeting the May low of 19.18.
The Relative Strength Index (RSI) in the daily chart is currently at 40. The RSI’s downward trajectory supports a slight bearish bias for the pair in the near term. A sustained move below 19.30 could accelerate downside momentum.
If the pair manages to recover above the 20-day SMA, prices may test the weekly high, which was reached on Thursday at 19.43. This could open the door for the next barrier of resistance at the April low of 19.47.
USD/MXN daily chart
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.