USD/MXN depreciates on the decline of US yields, trades around 17.10

• USD/MXN loses ground as US Dollar declines due to weaker US yields.
• Mexican Peso could weaken on future economic policies from the new administration.
• The Greenback strengthens on Fed’s hawkish stance on interest rate trajectory.

USD/MXN extends its losses for the second successive session, inching lower to around 17.10 during the early European session on Tuesday. The US Dollar (USD) loses some ground due to the downbeat US Treasury yields, which puts pressure on the USD/MXN pair.

The upcoming presidential election on June 2nd is anticipated to result in Claudia Sheinbaum of the Morena party assuming victory. Market analysts foresee a gradual depreciation of the Mexican Peso (MXN) due to anticipated uncertainties surrounding the economic policies of the incoming administration.

Additionally, their projections include a 25 basis points rate cut starting in March. Furthermore, experts anticipate a subsequent escalation in the scale of rate cuts by the Bank of Mexico (Banxico) later in 2024.

December’s PPI (YoY) reported a decline of 10.6%, against the anticipated decrease of 10.5% and the previous figure of 8.8%. While US ISM Services Prices Paid increased to the reading of 64.0 in January, from December’s reading of 56.7.

Over the weekend, Powell remarked that it was premature to ease policy, emphasizing that the task of steering inflation toward its 2% target is ongoing. He added that the Federal Reserve might consider its first rate cut around the middle of the year.

Market participants will closely observe speeches from Federal Reserve officials for additional insights into potential adjustments to monetary policy. On the Mexican front, the release of Consumer Confidence data is scheduled for Wednesday, which will be closely watched for indications of the economic outlook in Mexico.