Anna 
In the early European hours on Monday, USD/MXN maintained its upward trajectory, reaching approximately 17.16. This positive movement is fueled by encouraging employment indicators, bolstering optimism about the likelihood of the US Federal Reserve refraining from interest rate cuts in the upcoming meeting and thereby strengthening the US Dollar (USD) against the Mexican Peso (MXN).
The robust performance of the US job market in January is a key driver of this optimism. Nonfarm Payrolls surged by 353,000 jobs, surpassing both the previous figure of 333,000 and the market consensus of 180,000. Additionally, Average Hourly Earnings (MoM) for January exceeded expectations at 0.6%, compared to the anticipated 0.3% and the December reading of 0.4%. The Unemployment Rate remained steady at 3.7%, aligning with the market’s expectation.
Recent statements from Federal Reserve officials, notably Chair Jerome Powell, emphasize the central bank’s reluctance to implement rate cuts in the upcoming March meeting. Powell has suggested that initiating rate cuts during March could be premature, emphasizing a cautious approach. Austan Goolsbee, President of the Chicago Federal Reserve (Fed) Bank, shares this sentiment, viewing the strong US job growth in January as a confirmation of the labor market’s resilience rather than a reason to delay rate cuts.
On the contrary, economists at MUFG Bank foresee a gradual weakening of the Mexican Peso (MXN) throughout 2024. This projection is attributed to uncertainties surrounding the economic policies of the next administration, with the upcoming presidential election on June 2nd potentially influencing the currency’s performance.
CIBC Capital economists maintain a different stance, anticipating consecutive 25 basis points rate cuts by the Bank of Mexico (Banxico) starting in March. They also project a later increase in the magnitude of rate cuts in late 2024, potentially bringing the overnight rate to 9.25% by the year’s end. These varying perspectives add layers of complexity to the economic outlook for USD/MXN in the coming months.
