• The Mexican Peso trades mixed as global Purchasing Manager Indices (PMI) for April are released. 
• Mexican Economic Activity data failed to inject much volatility into the Peso on Monday. 
• The short-term uptrend looks vulnerable to breakdown. 

The Mexican Peso (MXN) is trading mixed on Tuesday after plummeting temporarily at the end of last week, but then reverting to mean after fears of an escalation in the conflict in the Middle East abated. 

Mexican Peso shrugs off macro data

The Mexican Peso did not gain much traction on Monday despite the release of better-than-expected macroeconomic data for February. Economic Activity rose 1.4% MoM and 4.4% YoY in the second month of the year compared to January’s 0.9% and 1.9% increases, respectively, according to data from the Instituto Nacional de Estadistica, Geografia e Informatica (INEGI). 

Other news relevant to MXN included comments from Banxico Governor Victoria Rodriguez Ceja, who said that services inflation is not showing a clear downward trend. 

Rodriguez Ceja added that the Mexican Peso’s strength has, at times, helped contain inflation by lowering the cost of imported goods. 

Her comments reinforce the view that the central bank will be data dependent in its approach to monetary policy going forward. 

In March, Banxico cut interest rates by 0.25% for the first time in three years after inflation showed progress lower. The minutes of the meeting, however, showed a lack of conviction about whether inflation had fallen in a sustainable fashion. This suggested another cut at their next meeting in May is not guaranteed.

Mexican mid-month inflation data for April, out on Wednesday, could adjust expectations for the Banxico’s policy approach going forward. 

Mid-month inflation in March stood at 4.48% for headline and 4.69% for core YoY, and 0.27% and 0.33%, respectively, on a monthly basis. 

A higher-than-previous result is likely to further lower the probability of the central bank following up the March rate cut with another cut in the near term, and vice versa for a lower-than-previous result. 

Interest rates are a major driver of Forex markets. Higher interest rates appreciate a currency by attracting more inflows of foreign capital and the opposite for lower interest rates. 

Tuesday also sees the release of key global macroeconomic data in the form of April Purchasing Manager Indices (PMI) for most major economies (although Mexico’s PMIs are not scheduled for release until May 2). 

Eurozone PMIs have already been released and showed mixed results, with gains in Services but a deeper-than-forecast decline in Manufacturing PMI.

S&P Global PMIs for the US are scheduled for release at 13:45 GMT and could inject volatility into markets, especially for the most heavily traded MXN pair the USD/MXN.