The Mexican Peso (MXN) continues its ascent against major currencies, buoyed by hotter-than-expected inflation data and the persistent attractiveness of its high interest rates (11.00%). This “carry trade” allure, where investors borrow low-yielding currencies to invest in higher-yielding ones like the MXN, further bolsters the Peso’s strength.

Inflation Data Fuels Peso’s Rise

June’s inflation figures exceeded forecasts, with headline inflation reaching 0.38% month-on-month and the annual rate climbing to 4.98%. While core inflation showed a slight moderation, it remained above May’s figures, signaling persistent price pressures.

This data complicates the outlook for interest rates in Mexico. While some analysts, like Capital Economics, see a potential rate cut in August due to easing core inflation and a strengthening Peso, the overall inflationary environment might deter the central bank from such a move.

USD/MXN Technical Outlook: Bearish Momentum Builds

The USD/MXN pair has breached the crucial June 24th low of 17.87 on an intraday basis, signaling a potential continuation of the bearish trend. A decisive break below this level, characterized by strong selling pressure, could target the 50-day Simple Moving Average (SMA) at 17.50.

While the medium and long-term trends remain uncertain, the short-term bias for USD/MXN is firmly bearish.

Key Takeaways:

• Mexican Peso strengthens on robust inflation data.
• Rate cut prospects in Mexico become less certain.
• USD/MXN breaks below key support, hinting at further downside.
• Short-term bearish momentum intensifies.