The policy for rates was unchanged as expected, but the statement and Powell’s words give assurances of interest rate cuts of 75bp by year end.

All markets were eagerly awaiting today’s FOMC announcement and press conference. Mainly to be assured that the Fed’s pivot point was still on track despite slightly stronger than expected inflation data.

The fed left main the interest rate range at 5.25%-5.50%. The US dollar consequentially lost ground today against all major currencies. The DXY is down 1.3% on the day, the shift in direction comes after a rally of 7 sessions from March 8.

The US dollar had seen a change in sentiment regarding just how close the Fed’s pivot point could be after some higher than forecast inflation numbers. That correction in the market seems to have terminated.

However, the rates differential between the US and Mexico is likely to get tighter, which would favor the dollar. Rates are not coming down in the US for at least until May 1. But the probability of a rate cut for that meeting is only 9.3% according to the CME FedWatch.

Always according to the same probability app calculated using Fed Fund futures, the most likely date for a cut of 25bp is June 12^th. For this meeting the probability Fed Funds show is of 74.3% for a rate cut.

On the other hand, BANXICO is expected to cut rates by 25bp at tomorrow’s meeting. This monetary policy action is highly discounted, but it could help turn the USD/MXN higher if we get more bullish inflation news from the US.

Technical View

From the Day chart below for USD/MXN we can see how the bear trend for this pair is still intact. However, we’re reapproaching an important support level (black line) set from a low in July 2023 of 16.62.

Since we’re expecting an interest rate decision from BANXICO tomorrow, we need to wait and see how the market reacts. A break below this level should lead to new lows in the weeks ahead. While a test of this level and a close above it would indicate a likely correction.

A correction here would meet a first resistance level (red line) at 16.79, which was set by a dip on January 8. While a second resistance level (blue line) can be found at 16.99, set by a dip in September 2023.

A close below the support line would see the next support at a major confluence point from back in October 2015 at 16.37.