Mexican Peso benefits from subdued Manufacturing data in US, Europe

The Mexican Peso gained its key pairs – USD/MXN, EUR/MXN and GBP/MXN – after the release of PMI data showed cracks in most developed economies. The Manufacturing PMI gauges were particularly low, and in the US it fell unexpectedly into contraction territory below 50.0, clocking in at 49.9, which was well below the estimated 52.0 and March’s print at 51.9. 

In the UK, the manufacturing PMI also fell below 50, coming in at 48.7, from 50.3 previously, while in the Eurozone it fell to 45.6, missing estimates of an increase to 46.5. 

Conversely, services sector PMIs rose by a greater-than-expected margin in most countries – bar the US.  

Despite this, markets dialed forward their expectations for interest rate cuts by major central banks, especially the Federal Reserve (Fed). 

Markets may be being optimistic about rate cuts, however, according to analysts at Rabobank, who quote a paragraph in the PMI reports stating that factory-cost pressures remain elevated. 

“Yesterday’s manufacturing PMIs shouted ‘stagflation’, even if some heard ‘rate cuts’,” the Rabobank note said. 

“..but its (the PMI report’s) fine print said: ‘Manufacturing has now registered the steeper rate of price increases in three of the past four months, with factory cost pressures intensifying in April amid higher raw material and fuel prices, contrasting with the wage-related services-led price pressures seen throughout much of 2023’,” the Rabobank note continues, suggesting the impact on FX could be short-lived.