The Mexican Peso strengthens against the US Dollar, reaching 19.47 after weak US economic sentiment data. The Peso remains firm despite a 50 basis points rate cut by Banco de Mexico, buoyed by US data affecting the Dollar.

Banxico lowered interest rates by 50 basis points for the third consecutive meeting in 2025, with potential for further cuts. US Consumer Sentiment weakened, leading to a lower USD/MXN exchange rate despite a decreased yield differential.

US Economic Indicators

The University of Michigan indicated increased inflation expectations and decreased consumer sentiment. April showed rising Import Prices, hinting at potential Fed rate adjustments, while market predictions lean towards further easing.

Mexican Peso maintains strength despite Banxico’s dovish outlook and weak US data. Banxico retains a rate of 8.50%, anticipating additional rate cuts as inflation stabilises, with projections placing rates around 7.25%-7.75% by late 2025.

Consumer Sentiment Index dropped to 50.8, below expectations. Import Prices rose, indicating pressure, while market forecasts suggest a 54 basis points Fed easing by December 2025. USD/MXN appears likely to continue lowering, with support at 19.29 and resistance at 19.92.

Despite a cut in interest rates by the Bank of Mexico, the Peso has continued to appreciate versus the US Dollar, trading as low as 19.47. Markets often interpret rate cuts as a signal for currency weakness, yet the dynamics here suggest a different driver is in control — primarily the performance of the US Dollar itself.

Fed’s Potential Policy Adjustments

The Federal Reserve may be nearing a point where it must acknowledge softening sentiment among consumers. The University of Michigan’s latest reading places its Consumer Sentiment Index markedly lower, at just 50.8, below even modest expectations. This kind of drop signals weakening confidence in the broader economy. Inflation expectations from that same dataset ticked higher, offering a conflicting message that won’t be ignored by policy-setters in Washington. It introduces the kind of tension traders must now price in between sticky inflation worries and waning consumer activity.

While some of that pressure might be dismissed as temporary, the uptick in import prices during April adds weight to the notion that cost pressures aren’t easing fast enough. Should this continue, the Fed may find its room to delay further policy action rather constrained. Despite this, swaps pricing points to a potential 54 basis points worth of rate reductions by December 2025 — a firm signal that market participants still believe policy will loosen.

Meanwhile, the Bank of Mexico, under pressure from stabilising inflation, opted to trim rates by another 50 basis points, settling at 8.50%. That’s the third successive meeting with this kind of move. What’s particularly worth noting is the currency’s resilience in this environment. A rate path aiming for 7.25%–7.75% by the end of 2025 suggests the institution remains committed to guiding lower, but this strategy hasn’t dented the Peso’s footing.

Technically, the Peso finds a support zone near 19.29, a level it seems to respect for now. Resistance stands firmer around 19.92, which leaves some breathing room for price action to develop short term. Until the Dollar gathers more direction from rates, we may see the trend continue in favour of the Peso. Volatility will likely favour traders who are quick to respond rather than those positioning for longer carries.

From our side, it makes sense to watch closely how the Fed addresses these inconsistencies during upcoming appearances. If sentiment keeps dipping with inflation holding firm, policy guidance may begin to shift faster than anticipated. If that happens, expect correlations in interest rate differentials and exchange rates to tighten swiftly — timing entries and exits will require closer attention than usual.

Traders positioned towards USD/MXN downside should stay alert for any hints of clarity, or even contradictions, in Fed communications. At the same time, movements around support at 19.29 could become pivotal for short-term risk-taking strategies.

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