• Mexican Peso approaches last week’s high of 18.48; USD/MXN bulls target 18.50.
• Mexico’s inflation slows as core CPI rate drops below 6%, headline inflation near Banxico’s target.
• USD/MXN trading within the 18.20-18.40 range amid a US holiday.

Mexican Peso (MXN) loses territory against the US Dollar (USD) as risk aversion takes its toll after the resurgence of a Middle East conflict that involves Israel and Hamas. Therefore, the safe-haven status of the Greenback (USD) spurred demand, though high Oil prices have capped the USD/MXN pair rise as the fight intensifies, exchanging hands at around 18.30 for a gain of 0.86%.

Geopolitics is the main driver of Monday’s session, which also features a holiday in the United States (US) in observance of Columbus Day. Mexico’s inflation continues its downtrend, as reported by the National Statistics Agency known as INEGI on Monday, which could influence the Bank of Mexico’s (Banxico) decisions in the last two meetings of 2023. However, market participants estimate Banxico to hold rates for the remainder of the year at 11.25%.

Daily Digest Market Movers: Mexican Peso on the defensive as inflation dips amid risk-off impulse

• Mexico’s Consumer Price Index (CPI) grew by 4.45% YoY in September, below the 4.47% of estimates.
• The core CPI inflation in Mexico stood stickier at 5.76% YoY, as widely estimated, but has broken below the 6% threshold.
• A Citi Banamex poll showed economists estimate headline inflation at 4.70% and core at 5.09% for the year’s end.
• Analysts polled by Citi Banamex foresee the USD/MXN to end 2023 at 17.80, up from 17.60, and for 2024 at 18.86, up from 18.70 two weeks ago.
• On October 4, 2023, the IMF raised Mexico’s growth projection in 2023 from 2.6% to 3.2% and from 1.5% foreseen in July to 2.1% for 2024.
• Banxico’s September poll amongst economists reported that interest rates are expected to remain at 11.25% while inflation would dip to 4.66%.
• The same poll shows the USD/MXN exchange rate is set to finish at around 17.64, down from 17.75.
• Mexico’s S&P Global Manufacturing PMI for September came at 49.8, sliding to contractionary territory and below August’s 51.2, as the economy loses steam.
• The Bank of Mexico (Banxico) held rates at 11.25% in September and revised its inflation projections from 3.5% to 3.87% for 2024, above the central bank’s 3% target (plus or minus 1%).
• Banxico’s Government Board highlighted Mexico’s economic resilience and the strong labor market as the main drivers to keep inflation at the current interest rate level.

Technical Analysis: Mexican Peso at the brisk of depreciating to 19.00

The USD/MXN daily chart portrays the exotic pair as bullish-biased after hitting a new cycle high of 18.48 on Friday, above the April 5 high of 18.40. If buyers reclaim 18.50, that will extend the Mexican Peso’s losses with the pair aiming towards the March 24 swing high at 18.80, which, if cleared, would expose the 19.00 figure. On the other hand, if sellers reclaim the 200-day Simple Moving Average (SMA) at 17.79, that would pave the way to challenge the September 30 low of 17.34