USD/MXN drops below 24.00 after Banxico cuts rates as expected

• Mexican peso outperforms gains for the second day in a row versus US dollar.
• Banxico cuts key interest rate from 6% to 5.5%, as expected.

The USD/MXN pair dropped following the decision of the Bank of Mexico to cut rates. As of writing, it stands below 23.90, trading at two-day lows.

Before Banxico’s announcement, the pair was moving sideways between 24.10 and 24.40, supported by a solid performance of the Mexican peso. Below 24.00, the bearish momentum intensified. The next support is seen at 23.80 followed then by 23.55. On the upside, 24.15 is the immediate resistance now and then comes the critical 24.35/40 that if broken, should lead to more gains.

Mexico's central bank moves as expected

“Taking into account the referred risks for inflation, economic activity and financial markets, major challenges arise for monetary policy and for the economy in general. Considering the room for maneuvering that on balance monetary policy has as a result of these implications, and with the presence of all its members, Banco de México’s Governing Board decided unanimously to lower the target for the overnight interbank interest rate by 50 basis points to a level of 5.5%”, said Banxico in its statement.

On the back of lower inflation and the impact on the economic activity of the coronavirus, analysts continue to see more rate cut in the short-term in Mexico.