Banxico Preview Higher inflation but can they leave rates unchanged

As mentioned in the Week Ahead, it’s a slow week for Central Bank meetings. However, the Bank of Mexico (Banxico) meets on Thursday to discuss interest rate policy. Banixco has been lowering rates since before the pandemic began. When the coronavirus hit in the spring of last year, they began to cut more aggressively (as did most central banks). Interest rates in Mexico are currently at 4% and the central bank is expected to leave rates unchanged when they meet this week.

However, Mexico is faced with rising inflation. Last week, Mexico’s inflation rate for April was released and the print was 6.08%, the highest since December 2017! At the Mexico’s last interest rate decision meeting in March, members noted that although inflation increased to 4.12% in March, they expected inflation on converge at 3% in Q2 of 2022. With inflation now at 6.08%, will they change their target date for convergence at 3% or will they need to hike rates at some point to meet that goal?

What about the coronavirus?

The country remains at level Orange, one level below the top tier. Roughly 15% of the population has been vaccinated and there are supply issues with the Russian Sputnik vaccine. Banixco must try to balance monetary policy between the on-going coronavirus problem and rising inflation.

USD/MXN

USD/MXN had been moving lower since the pandemic highs in April 2020. The pair formed a bearish wedge, putting in a low on January 20^th. USD/MXN moved higher and broke out of the top of the wedge but couldn’t even retrace to the 38.2% Fibonacci level from the April 2020 highs to the January 20^th lows at 21.9351. The pair corrected to a high of 21.6355 on March 8^th and began moving lower again. USD/MXN is currently trading near 19.9560, just pips above the January 20^th lows of 19.5417.

Source: Tradingview, FOREX.com

On a 240-minute timeframe, horizontal resistance is above at 20.1545, then the 38.2% Fibonacci retracement level from the March 24^th highs to the April 29^th lows near 20.2391. If price moves above that, the May 4^th highs are at 20.3197. Support below is at the April 29^th lows of 19.7841, then horizontal support at the January 20^th lows near 19.5491.

Source: Tradingview, FOREX.com

The expectations are for the Bank of Mexico to leave rates unchanged on Thursday. However, with inflation at 3-year highs and the coronavirus still prevalent, the statement will be closely watch for clues as to the next move for Banxico.

Learn more about forex trading opportunities.

StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Europe Limited, and FOREX.com/ie is a domain operated by StoneX Europe Ltd, a member of StoneX Group Inc. StoneX Europe Ltd, is a Cyprus Investment Firm (CIF) company registered to the Department of Registrar of Companies and Official Receiver with a Registration Number HE409708, and authorized and regulated by the Cyprus Securities & Exchange Commission (CySEC) under license number 400/21. StoneX Europe is a Member of the Investor Compensation Fund (ICF) and has its registered address at Nikokreontos 2, 5th Floor, 1066 Nicosia, Cyprus.

StoneX Europe Limited is registered with the German Federal Financial Supervisory Authority (BaFin). BaFin registration ID: 10160255

FOREX.com is a trademark of StoneX Europe Ltd, a member of StoneX Group Inc.

The statistical data and the awards received refer to the Global FOREX.com brand.

This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy.

Through passporting, StoneX Europe is allowed to provide its services and products on a cross-border basis to the following European Economic Area ("EEA") states: Austria, Bulgaria, Croatia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

Additionally, StoneX Europe Ltd is allowed to provide Investment and Ancillary Services to the following non-EU jurisdiction: Switzerland.

StoneX Europe Ltd products, services and information are not intended for residents other than the ones stated above.

Tied Agent Information: KQ Markets Europe Ltd with Company No. HE427857.
Address: Athalassas 62, Mezzanine, Strovolos, Nicosia Cyprus.
Services Provided: Reception and Transmission of Orders.
Commencement Date: 06/12/2022
Website: KQ Markets - CFD Trading | KQ Markets

We may pay inducements, such as commissions or fees, to affiliates or third-party introducers for referring clients to us. This is in line with regulatory guidelines and fully disclosed where applicable.

StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation. StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.