USD/MXN retreats to 19.40 after reaching fresh two-month highs at 19.50

• Mexican peso drops for the sixth day in a row versus US dollar. 
• USD/MXN off highs stabilises around 19.40. 

The USD/MXN continued to rise on Thursday, but it offered some signals of stabilization after a sharp rally. The pair jumped to 19.50, reaching the highest level since December 4. It then pulled back, finding support above 19.30. 

Over the last hours, USD/MXN has been hovering around 19.40. The current consolidation could signal some exhaustion to the upside. Still, a break above 19.50 would clear the way to more gains. 

Risk aversion continues to be the key driver. Global stock markets dropped again on Thursday weakening the demand for emerging-market assets. The worst performer was the Colombian peso (-1.80% versus USD) followed by the Russian ruble (-1.10%). 

Banxico minutes

The Bank of Mexico released the minutes of its latest board meeting when it decided
unanimously to lower the key interest rate by 25 basis points to 7%. 
According to the minutes, “among the elements considered in this decision, the following stand out: the levels attained by headline inflation, its outlook within the time frame in which monetary policy operates, the greater economic slack, and the recent behavior of external and domestic yield curves.”

Some members considered that given the economic environment, the current monetary policy continues being very restrictive. Mexican interest rate continues to be among the highest across emerging market countries, so more rate cuts are expected in the near term. 

Regarding economic activity, “most members estimated that economic
stagnation responds to multiple factors. The majority also mentioned that using monetary policy to reactivate the economy would have modest benefits and could imply a high risk.”

The next meeting will be March 26.