USD/MXN declines after Banxico raises rates by 50bp

The Mexican peso rose across the board after the Mexican central bank rose the benchmark interest rate by 50 basis points from 5.25% to 5.75%; a hike larger that market consensus (25bp).

The move follows yesterday’s rate hike from the Federal Reserve and is the third consecutive 50bp hike from Banxico. It started to raise rates after the sharp depreciation of the peso, that continues to be among the worst performers during the year in the currency market. 

According to them the effects of the rate increases will be felt during 2017. They expect inflation to rise at a faster pace in the coming months. The central bank said that it will continue to pay attention to relative rates with the US, which means that if the Fed continues to raise rates, it will likely be followed by Banxico. 

USD/MXN trims Fed’s gains 

The pair was trading around 20.25 before the FOMC announcement, it peaked today at 20.69, the strongest level since December 5. After the decision from Banxico, it dropped below 20.40, trimming yesterday’s gains. 

USD/MXN continues to move in a wide range since mid-November with support around 20.10 and resistance around 20.80. So far during 2016 has risen 18%.