Daily digest market movers: Mexican Peso shrugs off hot US inflation data

As expected, March US core PCE figures came in at 0.3% compared to the previous month's reading. Annually-based inflation increased by 2.8%, unchanged from February but exceeding estimates.

PCE Price Index revealed headline inflation of 0.3% MoM, which was aligned with the consensus and unchanged. On a yearly basis, prices increased by 2.7%, up from 2.5%, exceeding forecasts of 2.6%.

Consumer Sentiment in the United States (US) deteriorated in April, blamed on higher expected prices as inflation expectations rose. The University of Michigan sentiment index fell to 77.2 from 79.4 in March, below estimates of 77.9. Inflation expectations for one year rose by 3.2% over the next twelve months, its highest level since November, up from the 2.9% expected in March.

In March, Mexico registered a $1,583 million trade deficit when adjusted for seasonal figures, revealing INEGI on Friday. At the same time, the Unemployment Rate was 2.3% for the same period, non-seasonally adjusted.

Mexican Peso is also supported by the latest inflation report, which revealed that core prices edged lower, but headline inflation is up from 4.48% to 4.63%. This would deter the Bank of Mexico (Banxico) from easing policy at the May meeting.

Citibanamex Survey showed that most analysts expect Banxico to hold rates unchanged at the May meeting. The median foresees a rate cut in June, while they estimate the main reference rate to end at 10.00%, up from 9.63% previously.

Banxico Governor Victoria Rodriguez Ceja said that service inflation is not slowing as expected. She added that the Peso’s strength has helped to temper inflationary pressure and lower imported goods. She emphasized that Banxico would remain data dependent.

Data from the Chicago Board of Trade (CBOT) suggests that traders expect the fed funds rate to finish 2024 at 5.050%, up from 5.035%, on Thursday.