The Bank of Mexico has cut its key interest rate by 50 bps to 4.50%, with one member of the Governing Board voting for a 25 bps cut to 4.75%. This decision is in line with market expectations.
In the monetary policy statement, the Banco de Mexico’s Governing Board said that its decision to lower the overnight banking rate from 5.00% to 4.50% was dictated by its outlook of core inflation remaining around 3% within a 12-24 month forecast horizon. The bank also noted the significant contraction of economic activity in the second quarter as a result of the coronavirus pandemic, and expects that Mexico will follow a trend of downward inflationary pressures globally.
The Governing Board has also reiterated that it stands ready to take whatever actions are needed to maintain a policy rate that is consistent with “orderly and sustained convergence of headline inflation” to the bank’s targets.
Technical Outlook for USDMXN
The pair is testing support at 22.20099. A breakdown of this price area allows the USDMXN to aim for the next downside target at 21.86876, with 21.48906 lining up as additional support.
A bounce on the current support is another possibility, which allows for a push towards the 22.5000 price level (intraday highs for the week), with 22.77054 and 23.24516 also lining up as potential upside targets.