- Mexican Peso gains against USD, with USD/MXN falling to 16.93 after US jobs data shows higher-than-expected employment growth.
- Banxico’s recent minutes highlight ongoing inflation challenges, affirming the need for stable interest rates.
- Economic data from the United States was mixed, though it maintains a Goldilocks scenario.
- US Treasury yields rise as market expectations for Fed rate cuts in 2024 adjust to 135 basis points.
The Mexican Peso (MXN) stages a comeback and registers a new three-day high against the US Dollar (USD) after the US Bureau of Labor Statistics (BLS) revealed the economy in the United States (US) added more jobs than expected in December. Recently, additional data from the Institute for Supply Management (ISM) suggests that business activity in the services sector is at recessionary levels, weighing on the Greenback. At the time of writing, the USD/MXN is trading at 16.90, down 0.63%.
Mexico’s economic docket is absent on Friday, but the release of the latest Bank of Mexico (Banxico) minutes on Thursday suggested the inflationary scenario in the country poses challenges, which is why it sees it necessary to maintain rates at current levels “for a certain time.”
Data from the United States (US) included jobs data, which surprisingly crushed estimates, while a survey of the ISM fell into recessionary territory. At the same time, Factory Orders of US-made goods exceeded October’s data.
Daily digest market movers: Mexican Peso remains firm, extending its gains against the US Dollar
- Factory Orders in December rose by 2.6% in November, exceeding October’s plunge.
- On Friday, the Institute for Supply Management (ISM) reported that the Non-Manufacturing PMI decreased from 52.7 to 50.6, marking its lowest level since May 2023. This decline is attributed to a significant fall in the employment measure, which dropped to its lowest point in three and a half years.
- US Nonfarm Payrolls in December increased by 216K, exceeding forecasts of 170K, though figures from November were downwardly revised from 199K to 173K.
- The Unemployment Rate edged lower from 3.8% to 3.7%, while Average Hourly Earnings YoY rose from 3.9% to 4.1%.
- Most analysts see the December US employment report maintaining a goldilocks scenario, as the Greenback dives after printing a new three-week high at 103.10, as shown by the US Dollar Index (DXY). At the time of writing, the DXY sits at 102.45 almost flat.
- Banxico’s latest meeting minutes suggest the central bank could begin taking into consideration easing monetary policy, but with a cautious approach. Four members of the Governing Council expressed the need to be careful when evaluating or communicating rate cuts. On the other hand, one member said they could begin discussing rate cuts.
- Most of Mexico’s central bank members expressed that inflation’s outlook continues to pose challenges.
- At its December meeting, Banxico kept rates unchanged at 11.25%.
- The Federal Reserve’s latest meeting minutes indicated that most officials believe interest rates are approaching or have reached their peak. However, they noted uncertainty regarding the duration for which the restrictive policy should be sustained. Despite observing some improvements in inflation, they acknowledged that core services prices remain high. It was also mentioned that some policymakers might favor maintaining the current interest rates longer than initially expected.
- On Tuesday, Mexico’s S&P Global Manufacturing PMI for December came out at 52.0, below November’s 52.5, suggesting the economy is slowing down amid Banxico’s tightening cycle.
- On Wednesday, Business Confidence in Mexico improved to 54.6 from 54.0 in November, although it failed to underpin the Mexican Peso, which remained weak during the session.
Technical analysis: Mexican Peso buyers moved in after US jobs report as USD/MXN dives
The USD/MXN resumed its downtrend on Friday and plunged below 17.00. It accelerated its pace to test December’s lowest point seen at 16.86, which, if cleared, could pave the way to challenge last year’s cycle low of 16.62.
On the flip side, if sentiment shifts bullish on the US Dollar, the exotic pair could reclaim the 17.00 figure, followed by the 17.05 mark. A breach of the latter will expose the 17.20 figure, followed by the convergence of the 50, 100, and 200-day Simple Moving Averages (SMAs) at the 17.31/42 area.
Also read: Mexican Peso Price Annual Forecast: Which factor would impact most in 2024, economics or politics?
USD/MXN Price Action – Daily Chart
Nonfarm Payrolls FAQs
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation.
A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work.
The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower.
NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa.
Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold.
Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components.
At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary.
The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.
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- Source: https://www.fxstreet.com/news/mexican-peso-rallies-to-three-day-high-as-us-job-data-exceed-forecasts-202401051518
