USD/MXN rebounds from 18.80, gains after 6-day losing streak

• Mexican peso drops modestly versus US Dollar, first lost in seven days. 
• Greenback post gains against Emerging market currencies. 
• Bank of Mexico: One board members ask for a change in the tone to neutral. 

The decline of the USD/MXN from 19.47 (Mar 29 high) bottomed yesterday at 18.80. Today it tested the lows but held on top and bounced to the upside, making a bullish correction. 

A bottom in place? 

The pair found support around 18.80 and rebounded. The up move from the lows was capped by the 18.90 area and near the end of the session was hovering around 18.85. The 18.80 zone has become a critical short-term support: a consolidation below would expose the next area at 18.70. The US dollar needs to rise back on top of 18.90 to remove the short-term pressure. The key level is 19.00: a recovery back above would change the bearish bias. 

Today’s gains were supported by a stronger US dollar across the board. It rebounded the day after the released of the FOMC minutes, helped by higher US yields and economic data. 

Banxico minutes: a dissenter surges 

The Bank of Mexico released today the minutes from its latest meeting when it voted to keep rates unchanged at 8.25% (a decade high). The tone from the statement at that meeting was hawkish or restrictive. The minutes showed that a board member, Gerardo Esquivel (appointed by Andres Manuel López Obrador) dissented from the restrictive tone and considered that taking into account Mexican inflation and the change in many central banks, the message should be more neutral. 

“Although I agreed with the decision to keep the target interest rate level constant, I do not agree with the press release that informs about such decision. Specifically, I differ on both the restrictive tone that characterizes it as well as the conclusion reached with respect to the balance of risks to inflation”, said Gerardo Esquivel in a statement contained in the minutes. 

According to him, the recent evolution of inflation described in the policy statement as well as the policy changes announced recently by the Fed and the ECB, opened up
the space for a press release with a more neutral tone. “I consider that the downside risks to inflation due to both a perspective for conditions of greater slack in the Mexican economy as well as a foreseeable worldwide economic deceleration, are high enough as to balance the potential upward risks that are identified in the document.”