USD/MXN clings to mild gains at multi-day peak near 17.60 as Peso sellers await Mexico inflation, Fed signals

• USD/MXN remains firmer at the highest level in three months despite latest inaction, up for the sixth consecutive day.
• Firmer US data, hawkish Fed signals join upbeat yields to underpin US Dollar strength.
• Lack of Mexican catalysts keeps Peso on the back foot.
• Mexican inflation clues, US data and Fed talks eyed for clear directions.

USD/MXN remains on the front foot for the sixth consecutive day despite making rounds to a three-month high marked the previous day during the early hours of Thursday’s Asian session. That said, the Mexican Peso (MXN) pair prints mild gains around 17.60 by the press time, picking up bids of late to reverse the late Wednesday’s retreat from the multi-day high of 17.67.

Broad US Dollar strength amid optimism about the US economy, contrasts with the fears of recession elsewhere, and joins the Federal Reserve signals to defend the USD/MXN bulls even as the Peso has the higher yields.

The US Dollar Index (DXY) rose to a fresh high since March 15 on Wednesday while flashing a figure close to the 105.00 threshold before retreating to 104.85 afterward, around 104.90 by the press time. Even so, the Greenback’s gauge versus the six major currencies remains on the way to posting an eighth consecutive weekly gain amid economic optimism.

That said, the US ISM Services PMI rose to a six-month high of 54.5 in August versus 52.5 expected and 52.7 prior. Further, the final readings of the S&P Global Composite and Services PMIs eased to 50.2 and 50.5 for the said month compared to the initial estimations of 50.4 and 51.0 in that order. It should be noted that all three major constituents of the ISM Services PMI, namely Employment, New Orders and Prices Paid rose notably beyond the previous readings and helped the US Dollar to reverse early-day pullback. Earlier in the week, the US Factory Orders for July dropped to the lowest since mid-2020 but the details about the orders excluding transport, shipments of goods and inventories were impressive to defend the hawkish Fed bias.

Given the mostly upbeat US data, Federal Reserve (Fed) Governor Christopher Waller defended hawkish monetary policy during a CNBC interview while Cleveland Federal Reserve President Loretta Mester ruled out rate cuts. However, Federal Reserve Bank of Boston President Susan Collins cited the risk of an overly restrictive stance on monetary policy to suggest the need for a patient and careful, but deliberate, approach. It should be noted, however, that the Fed’s Beige Book pushed back expectations of witnessing either a policy pivot or rate cut from the Fed while stating, “US economic growth was modest amid a cooling labor market and slowing inflation pressures in July and August,” which in turn fuels the yields and the US Dollar.

Additionally fueling the US Dollar, as well as the USD/MXN pair could be the downbeat concerns about China, the world’s second-largest economy. That said, China’s Caixin Services PMI joined the market’s lack of confidence in the Dragon Nation’s stimulus to spoil the concerns about Beijing. On the same line could be the US-China tension surrounding the trade conditions and Taiwan.

Against this backdrop, S&P 500 Futures remain depressed after Wall Street benchmarks closed in the red for the second consecutive day. That said, the US 10-year Treasury bond yields rose to a two-week high of around 4.30% and the two-year refreshed weekly top above 5.0%, which in turn offered notable strength to the US Dollar.

Moving on, Mexico’s Headline Inflation, 12-month Inflation and Core Inflation details for August will precede the weekly US Initial Jobless Claims and the quarterly readings of Nonfarm Productivity, as well as the Unit Labor Costs for the second quarter (Q2), to decorate the calendar and should be watched carefully for clear directions.

Technical analysis

A daily closing beyond the 17.42-43 horizontal resistance, now support, keeps the USD/MXN buyers hopeful of approaching the 18.00 threshold.