CFD Trading Rate US Dollar vs Mexican Peso (USDMXN)

• USD/MXN halts its losing streak ahead of US Inflation data on Tuesday.
• Mexican Industrial Production data is expected to show growth in January. 
• US CPI (MoM) is anticipated a slight increase in February.

USD/MXN snaps its eight-day losing streak as risk-off sentiment dominates ahead of the scheduled release of US inflation data on Tuesday. The USD/MXN pair trades higher around 16.80 during the European session.

The market anticipates a slight increase in February's US inflation (MoM) figure. A robust US Consumer Price Index (CPI) data would likely reduce the chances of an immediate rate cut by the Federal Reserve (Fed).

Mexico's economic calendar includes Industrial Production data for January on Tuesday, with market expectations indicating a monthly increase of 0.4% and a yearly rise of 2.1%. Additionally, market participants are eagerly anticipating the upcoming policy meeting of the Bank of Mexico (Banxico) on March 21.

The 12-Month Inflation rate decreased from a seven-month high in January. However, Core Inflation rose higher than the previous increase. Headline Inflation increased less than expected and lower than the previous rise.

US Nonfarm Payrolls added more jobs in February compared to January's figure and market expectations. However, US Average Hourly Earnings (YoY) increased but remained below both the estimated and previous readings.

Additionally, Federal Reserve (Fed) Chair Jerome Powell suggested potential cuts in borrowing costs sometime this year, highlighting that such actions would depend on the inflation trajectory aligning with the Fed's 2% target. According to the CME FedWatch Tool, there has been a slight decline in the probability of a rate cut in June, currently standing at 68.9%.

• USD/MXN extends its losing streak ahead of US CPI data scheduled for Tuesday.
• CME FedWatch Tool suggests a 73.8% probability of a rate cut in June.
• US Dollar suffered losses following the mixed employment data from the United States.

USD/MXN continues its downward trend following mixed employment data from the United States (US). The pair inches lower to around 16.80 during the European session on Monday. Negative sentiment surrounding the US Dollar Index (DXY) weakens the USD/MXN pair amid growing expectations of a Federal Reserve (Fed) rate cut in June.

According to the CME FedWatch Tool, there is a 73.8% probability of a rate cut in June. Furthermore, Federal Reserve (Fed) Chair Jerome Powell hinted at potential cuts in borrowing costs sometime this year, emphasizing that such actions would depend on the inflation trajectory aligning with the Fed's 2% target.

In February, US Nonfarm Payrolls added new jobs by 275K, exceeding January's figure of 229K and market expectations of 200K. However, US Average Hourly Earnings (YoY) increased by 4.3%, slightly below both the estimated and previous reading of 4.4%. Investors will likely observe the Consumer Price Index data from the United States (US) scheduled for Tuesday, along with Retail Sales and Producer Price Index data expected on Thursday.

On the Mexican side, the 12-Month Inflation rate increased by 4.40% in February. This figure represented a decline from a seven-month high of a 4.88% rise in January and was slightly lower than the forecasted increase of 4.42%. Core Inflation increased by 0.49%, higher than the previous 0.40% rise. However, Headline Inflation rose by 0.9%, which was lower than the expected 0.11% and the previous 0.89% increase. Market participants are eagerly awaiting the upcoming policy meeting of the Bank of Mexico (Banxico) on March 21.

USD/MXN fell in February from 17.17 to 17.06. Economists at MUFG Bank analyze Mexican Peso’s outlook.

MXN weakening path ahead

• USD/MXN consolidates as traders await the crucial labor market indicators.
• The US Dollar Index (DXY) attempts to halt its losing streak that began on March 1.
• Mexico’s 12-Month Inflation rose by 4.40% in February, compared to a 4.88% rise in January.

USD/MXN consolidates with reduced volatility, which could be attributed to investors exercising caution ahead of the scheduled release of US Nonfarm Payrolls and other employment data on Friday. The pair trades near 16.90 during the European session on Friday.

The Mexican Peso (MXN) could have faced downward pressure following the release of the country's 12-Month Inflation, rising by 4.40% in February. This figure marked a decline from a seven-month high of 4.88% rise in January and was slightly lower than the forecasted increase of 4.42%.

The Bank of Mexico (Banxico) reported that Core Inflation increased by 0.49%, higher than the previous 0.40% rise. However, Headline Inflation rose by 0.9%, which was lower than the expected 0.11% and the previous 0.89% increase.

On Thursday, US Initial Jobless Claims remained steady at 217K for the week ending on March 1, despite expectations of 215K. Meanwhile, US Nonfarm Productivity maintained a consistent growth rate of 3.2% in the fourth quarter of 2023, slightly surpassing market expectations of 3.1%.

On Friday, US Nonfarm Payrolls are projected to report 200K new jobs created in February, compared to 353K previously, potentially reinforcing market expectations of a Federal Reserve (Fed) rate cut in June. Federal Reserve Chair Jerome Powell hinted at the possibility of interest rate cuts occurring sometime in 2024. The CME FedWatch Tool suggests a 56.7% likelihood of a 25-basis points rate cut in June. These factors are collectively exerting downward pressure on the US Dollar, consequently undermining the USD/MXN pair.

The Mexican Peso (MXN) is not likely to have such an easy time this year as it has had in the past two years, economists at Commerzbank say.

MXN remains supported, but the next few months are likely to be bumpier

• USD/MXN continues its losing streak that began on February 29.
• US Dollar struggles on risk-on sentiment amid lower US Treasury yields.
• Mexican Headline inflation is anticipated to decelerate in February.

USD/MXN faces downward pressure due to the subdued US Dollar (USD), which could be attributed to the risk-on sentiment amid subdued US Treasury yields. The pair inches lower to near 16.90 during the European session on Thursday, with lower US Dollar Index (DXY) trading lower around 103.30.

US Treasury yields faced challenges as Federal Reserve (Fed) Chair Jerome Powell commented on rate cuts possibility at some point in 2024 during his testimony before the House Financial Services Committee. However, Powell stated that it is not suitable to lower the target range until it has attained a higher level of assurance that inflation is consistently progressing towards the 2% target.

Weaker employment data from the United States contributed to the downward pressure on the US Dollar (USD), which in turn, acts as a headwind for the USD/MXN pair. February's US ADP Employment Change was reported at 140K, slightly below the anticipated 150K but an improvement from the previous 111K.

On the Mexican side, INEGI released Consumer Confidence for February, showing a slight decrease to 47.1 from 47.6. The seasonally adjusted also came lower at 47.0 from 47.1. Traders await February’s inflation data scheduled to be released on Thursday. Headline Inflation is expected to slow down, with an expected increase of 0.11%, compared to the previous rise of 0.89%.

Economists at CIBC Capital Markets anticipate that the USD/MXN pair will rise as the Bank of Mexico (Banxico) is poised to diverge from the Federal Reserve by implementing a rate cut this month. Given the lack of adjustments in the trajectory toward achieving the 3% inflation target and Banxico's indication of a potential rate cut in March, they maintain their projection for successive rate reductions beginning next month, with an overnight rate forecast of 9.25% by year-end.

Economists at CIBC Capital Markets expect the USD/MXN pair to edge higher as Banxico is set to decouple from the Fed with a rate cut this month.

Banxico will decouple from the Fed in March

• USD/MXN faces a challenge on improved risk sentiment on Wednesday.
• CME FedWatch Tool suggests a 4.0% chance of a 25 bps Fed rate cut in March.
• Banxico is expected to reduce interest rates in the March meeting as per a Reuters poll.

USD/MXN continues its losing streak that began on February 29, declining to near 16.90 during the European session on Wednesday. The decline in the US Dollar (USD) puts pressure on the USD/MXN pair, which could be attributed to the improved risk appetite.

Additionally, the softer-than-expected ISM Services Purchasing Managers Index (PMI) from the United States (US), contributed pressure for the Greenback. The ISM Services PMI decreased to 52.6 from 53.4 prior, falling short of the expected 53.0 in February. Additionally, Factory Orders (MoM) decreased by 3.6% in January, more than the expected 2.9%.

Market participants will likely monitor Federal Reserve (Fed) Chairman Jerome Powell's testimony before the US Congress' House Financial Services Committee on Wednesday. Market attention is also focused on the ADP Employment Change report for February. According to the CME FedWatch Tool, there is a 4.0% probability of a 25 basis points rate cut in March, while the likelihood of cuts in May and June stands at 23.9% and 53.3%, respectively.

On the Mexican side, as per a Reuters poll, 15 analysts estimate that inflation will slow down in February, reinforcing expectations that the Bank of Mexico (Banxico) could cut rates as soon as the March 21 meeting. Moreover, market expectations remain high for Banxico to implement monetary policy easing in March, with investors anticipating a reduction of 75 basis points (bps) over the next six months.

On Monday, the data showed that Gross fixed investment in Mexico grew 13.4% year-on-year in December 2023, decelerating from a 19.2% rise in the previous month. Consumer confidence data is scheduled for release on Wednesday, followed by inflation data on Thursday.

USD/MXN must overcome the 200-Day Moving Average (DMA) at 17.27 to confirm short-term up move, analysts at Société Générale say.

Break below 16.78 can lead to one more leg of downtrend

• USD/MXN attracts traders amidst risk aversion ahead of key data releases from the United States.
• US ISM Services PMI is expected to ease at 53.0 for February, slightly lower than 53.4 prior.
• Banxico could reduce interest rates by 75 bps over the next six months.

USD/MXN snaps its three-day losing streak, inching higher to near 17.00 during the early European hours on Tuesday. The US Dollar (USD) strengthens amid risk aversion as investors brace for significant economic data releases from the United States (US) later in the week.

Market focus turns to the ISM Services PMI data slated for release on Tuesday, with expectations at 53.0 for February, slightly lower than the previous figure of 53.4. Notably, concerns surrounding inflation have eased following the PCE Price Index meeting expectations.

Traders appear cautious and are opting to wait for Federal Reserve (Fed) Chair Jerome Powell's congressional testimony on Wednesday and Thursday. They are seeking additional insights into the Federal Reserve’s potential rate-cut trajectory.

Atlanta Federal Reserve (Fed) President Raphael Bostic's remarks on Monday garnered attention, as he expressed uncertainty regarding achieving a soft landing. Bostic indicated that he does not anticipate consecutive rate cuts when they begin but still expects two 25-basis point rate cuts in 2024.

Market expectations remain high for the Bank of Mexico (Banxico) to implement monetary policy easing in March, with investors expecting a reduction of 75 basis points (bps) over the next six months. Banxico officials have emphasized a measured approach to rate adjustments, highlighting the importance of maintaining higher rates for an extended period.

Consumer Confidence data is scheduled for release on Wednesday, followed by inflation data on Thursday. The Mexican Peso (MXN) received upward support against the US Dollar (USD) following last week's release of January's labor numbers. The jobless rate increased to 2.9% year-over-year from 2.6% previously, surpassing expectations of a 2.8% rise.

• USD/MXN extends its losses as the US Dollar remains subdued following downbeat US manufacturing data.
• Fed’s Bostic expects that the rates deduction would likely initiate around the end of 2024.
• Banxico is expected to implement monetary policy easing in March, with 75 bps over the next six months.

USD/MXN extends its losses for the third successive session on Monday, edging lower to near 17.00 during the early European session. The US Dollar (USD) remains in the negative territory following the recent losses registered on Friday. The US Dollar Index (DXY) faced downward pressure primarily due to downbeat manufacturing numbers from the United States (US) recorded in February.

The DXY moves lower to near 103.80 despite the improved US Treasury yields with 2-year and 10-year standing at 4.55% and 4.20%, respectively, by the press time. Furthermore, Atlanta Fed President Raphael W. Bostic has shared his expectation that the interest rates deduction would likely initiate nearing the end of 2024 at the earliest, which suggests no rate cuts anytime soon and, consequently, supports the US Dollar (USD).

As per the CME FedWatch Tool, the rate cut chances in March stood at 5.0%, while the probabilities of cuts in May and June are estimated at 26.8% and 53.8%, respectively. Investors’ focus will be on the speech of Federal Reserve Chair Jerome Powell on Wednesday and Thursday for further insights into the central bank's monetary policy stance, along with the employment data later in the week.

On the other side, the Bank of Mexico’s (Banxico) Fiscal Balance in pesos showed a deficit of 159.14 billion in January, compared to the previous negative balance of 291.23 billion in December 2023. The Mexican Peso (MXN) has gained traction against the US Dollar (USD), buoyed by labor market data released for January last week. The jobless rate rose to 2.9% year-over-year from 2.6% prior, exceeding expectations of a 2.8% rise but maintaining a relatively tight labor market.

Anticipation for Banxico to implement monetary policy easing in March remains significant, with investors forecasting a reduction of 75 basis points over the next six months. Deputy Governors Jonathan Heath and Omar Mejia have voiced support for a measured strategy in adjusting rates, stressing the significance of sustaining higher rates for an extended duration. Furthermore, Deputy Governor Irene Espinosa has highlighted the necessity for Banxico to carefully evaluate both external and internal factors influencing inflation when formulating policy decisions.

• USD/MXN struggles to move into the positive territory on Friday.
• Jobless Rate increased to 2.9% YoY from the previous reading of 2.6%.
• Fed's first-rate cut could be delayed due to recent US GDP and PCE figures.

USD/MXN recovers its intraday losses and holds steady near 17.05 during the early European session on Friday, closely trading around the weekly low at 17.03 recorded on Thursday. The Mexican Peso (MXN) has gained traction against the US Dollar (USD), buoyed by positive labor market data released in the previous session for January.

The jobless Rate rose to 2.9% YoY from 2.6% prior, exceeding expectations of a 2.8% rise but maintaining a relatively tight labor market. While the seasonally adjusted rate stood at 2.8% in January. Furthermore, the Bank of Mexico (Banxico) will release January’s Fiscal Balance on Saturday. Banxico revised its economic growth projection for 2024 to 2.8% while maintaining the projection at 1.5% for 2025.

Deputy Governors Jonathan Heath and Omar Mejia advocated for a gradual approach to rate adjustments, emphasizing the importance of maintaining higher rates over an extended period. Additionally, Deputy Governor Irene Espinosa underscored the need for Banxico to consider both external and internal factors that impact inflation when making policy decisions.

The US Dollar Index (DXY) hovers near 104.10, with the improved US Treasury bond yields, which stand at 4.63% for the 2-year and 4.25% for the 10-year bonds at the time of publication. However, market expectations for the Federal Reserve's first-rate cut have been pushed back due to recent data, including Gross Domestic Product (GDP) figures and the US Personal Consumption Expenditures - Price Index from the United States (US), providing support for the US Dollar (USD).

According to the CME FedWatch Tool, the probability of rate cuts in March stands at 3.0%, while the likelihood of cuts in May and June is estimated at 23.1% and 52.2%, respectively. Investors are now awaiting the final US S&P Global Manufacturing PMI for February, scheduled for release on Friday.

• USD/MXN loses ground on improved risk-on sentiment.
• US Dollar declines despite improved US Treasury yields.
• Banxico expects to achieve the 3% goal in the second quarter of 2025.

USD/MXN faces challenges as the US Dollar (USD) loses ground after registering gains in the previous session despite the improved US Treasury yields. The USD/MXN pair edges lower to near 17.08 during the European trading hours on Thursday.

The USD/MXN pair witnesses the weakness possibly due to improved risk appetite ahead of the release of key US Personal Consumption Expenditures - Price Index data, which could potentially influence the Federal Reserve's monetary policy stance.

The US Dollar Index (DXY) depreciates on Thursday and maintains its position around 103.80 with 2-year and 10-year yields on US Treasury coupons standing at 4.65% and 4.28%, respectively, by the press time.

The preliminary US Gross Domestic Product Annualized (Q4) improved by 3.2%, against the 3.3% expected. Additionally, the preliminary US Gross Domestic Product Price Index (Q4) rose by 1.7%, surpassing both expected and previous rises of 1.5%.

On the Mexican side, Governor Victoria Rodriguez Ceja announced that the Gross Domestic Product (GDP) was downwardly revised to 2.8% from 3.0% in the previous report to. She anticipates the GDP for 2025 to remain at 1.5%, consistent with previous projections. Additionally, the Trade Balance indicated a trade deficit in January exceeding expectations. Jobless Rate data is scheduled for release on Thursday.

Bank of Mexico (Banxico) estimates that they will achieve the 3% goal in the second quarter of 2025. Banxico’s Deputy Governor Jonathan Heath supports the notion of a quarter of a percentage cut to adjust real rates. Subsequently, he favors maintaining higher rates for an extended duration.

• USD/MXN snaps its losing streak on risk-off sentiment on Wednesday.
• US Gross Domestic Product Annualized (Q4) is expected to be unchanged at 3.3%.
• Mexico’s Trade Balance posted a trade deficit of $4.315 billion in January, against the expected deficit of $2.286 billion.

USD/MXN rebounds after experiencing losses in the prior two sessions, with the pair advancing to around 17.08 during European trading hours on Wednesday. The strength of the US Dollar (USD) is driving the movement in the USD/MXN pair, possibly influenced by a risk-off sentiment prevailing in the market ahead of the release of the preliminary Gross Domestic Product Annualized (Q4) data from the United States scheduled for later in the day.

The US Dollar Index (DXY) continues to strengthen despite the subdued US Treasury yields. The DXY has risen to nearly 104.10, while the 2-year and 10-year yields on US Treasury bonds stand at 4.69% and 4.29%, respectively, at the time of reporting.

In economic news, the US Housing Price Index (MoM) saw a modest increase of 0.1% in December, falling short of expectations for a 0.3% increase and below the prior month's increase of 0.4%. Additionally, US Durable Goods Orders experienced a significant decline of 6.1%, contrasting sharply with expectations for a decrease of 4.5% and the previous month's decrease of 0.3%.

On Mexico’s side, the higher interest rates set by the Bank of Mexico (Banxico) at 11.25% may have had an impact on economic activities. The Jobless Rate data by INEGI is expected to be released on Thursday, with an anticipated slight increase to 2.8% in January from the previous increase of 2.6%.

On Tuesday, Mexico reported the Trade Balance for January, revealing a trade deficit of $4.315 billion, surpassing the expected deficit of $2.286 billion and exceeding the previous deficit of $4.242 billion. The seasonally adjusted figures reported a deficit of $0.302 billion compared to the previous surplus of $1.659 billion. These subdued trade figures may have contributed to undermining the Mexican Peso (MXN), consequently providing support for the USD/MXN pair.

• USD/MXN extends losses on improved risk sentiment.
• US Dollar Index declines to around 103.70 amid subdued US Treasury yields.
• Banxico officials expect the prospect of implementing the first rate cut in March.

USD/MXN extends its losses for the second successive day, trading lower around 17.08 during the early European hours on Tuesday. This decline can be attributed to the weakened US Dollar (USD), primarily influenced by subdued US Treasury yields. Moreover, improved risk appetite in the market exerts additional downward pressure on the Greenback, acting as a headwind for the USD/MXN pair.

The US Dollar Index (DXY) dips to around 103.70 amid the subdued US Treasury yields. At the time of writing, the 2-year and 10-year yields on US bond coupons stand at 4.71% and 4.28%, respectively. The Federal Open Market Committee (FOMC) minutes have reinforced a data-dependent approach by the Federal Reserve (Fed), signaling a more dovish stance, which has further weighed on the US Dollar (USD).

Investors will be closely monitoring several key economic indicators scheduled for release later this week, including Gross Domestic Product Annualized (Q4), Core Personal Consumption Expenditures, and the Fed Monetary Policy Report.

The recent meeting minutes revealed that three policymakers of the Bank of Mexico (Banxico) are contemplating the prospect of implementing the first rate cut at the upcoming March meeting. This consideration is strengthened in light of the economic deceleration highlighted by the recent inflation figures. This sentiment could potentially exert pressure on the Mexican Peso, consequently supporting the USD/MXN pair.

Contrary to expectations, Mexico's 1st half-month inflation for February decreased, while 1st half-month Core Inflation expanded slightly below expectations. Market participants are eagerly awaiting the release of Trade Balance data for January on Tuesday, with close attention to potential implications for the economic landscape and currency movements.

• USD/MXN halts its advances on subdued US Bond yields.
• The recent data reinforced the case for the Fed to maintain higher interest rates to address inflationary pressures.
• Mexico’s Current Account (Q4) increased to $11,662M against the expected $5,000M.

The USD/MXN pair experiences a decline after two consecutive days of gains, trading around 17.10 during the early European session on Monday. This downward movement is attributed to subdued US Treasury yields, which are putting pressure on the US Dollar (USD), consequently, undermining the USD/MXN pair.

The US Dollar Index (DXY) is slightly lower, hovering around 103.90, while the 2-year and 10-year yields on US Treasury notes stand at 4.67% and 4.22%, respectively, at the time of writing. However, the US Dollar (USD) maintained stability after recording gains in the past two sessions.

The US Dollar (USD) received support from robust employment data and mixed Purchasing Managers Index (PMI) figures from the United States (US). This reinforced the case for the Federal Reserve (Fed) to maintain higher interest rates to address inflationary pressures.

Investors are expected to closely watch key economic indicators, including Gross Domestic Product Annualized (Q4), Core Personal Consumption Expenditures, and ISM Manufacturing PMI later in the week. Additionally, the release of the Fed Monetary Policy Report will be closely monitored for further insights into the central bank's stance.

On the contrary, the Mexican Peso (MXN) might have found support from positive economic data released on Friday. The Bank of Mexico (Banxico) reported a significant increase in the Current Account (Q4) to $11,662M, surpassing expectations of $5,000M and the previous figure of $908M. Additionally, the Accumulated Current Account/GDP rose by 2.47% in the fourth quarter of 2023, compared to the previous quarter's reading of 0.19%.

Moreover, Mexico's 1st half-month Inflation for February declined by 0.1%, contrary to the expected increase of 0.15% and the previous rise of 0.49%. Similarly, the 1st half-month Core Inflation expanded by 0.24%, slightly below the expected 0.28% and matching the previous figure of 0.25%. Market participants are anticipated to closely monitor the Trade Balance data for January, scheduled for release on Tuesday.

• USD/MXN gained ground for the second consecutive session on Friday.
• Mexico’s 1st half-month Inflation declined by 0.1% in February, against the expected 0.15% rise.
• USD Dollar improves as US Treasury yields appreciate on diminished hope of Fed rate cuts.

USD/MXN continues its upward trajectory for the second consecutive day, edging higher to near 17.10 during the early European hours on Friday. The pair receives upward support following softer data from Mexico and mixed data from the United States (US) released on Thursday.

Mexico’s 1st half-month Inflation declined by 0.1% in February, against the expected rise of 0.15% and the previous growth of 0.49%. While the 1st half-month Core Inflation grew by 0.24% against the expected 0.28% and 0.25%.

INEGI reported that the Mexican Gross Domestic Product (QoQ) increased by 0.1%, as expected in the fourth quarter of 2023. The previous growth was 1.1%. The annual report showed an increase of 2.5% against the expected 2.4% and 3.3% prior.

The US Dollar Index (DXY) hovers near 103.90, supported by higher US yields, standing at 4.72% and 4.32% for 2-year and 10-year US Treasury bonds, respectively, at the time of writing. Additionally, the US Dollar (USD) received upward support on Thursday, propelled by robust labor data from the United States (US), which serves as a tailwind for the USD/MXN pair.

According to the US Bureau of Labor Statistics (BLS), weekly Initial Jobless Claims fell below consensus expectations, with figures declining to 201K for the week ending on February 16, lower than the market's anticipation of 218K and the previous figure of 213K.

Furthermore, hawkish remarks from US Federal Reserve officials, emphasizing the avoidance of interest rate cuts in the near term, could further reinforce support for the US Dollar. Federal Reserve Governor Christopher J. Waller stated that the initiation of policy easing and the number of rate cuts will depend on incoming data, with the Committee prepared to wait a little longer before considering monetary policy easing.

Participating in a moderated discussion at a Conference hosted by Princeton University in New Jersey, Federal Reserve Governor Lisa D. Cook remarked that risks to achieving employment and inflation goals have moved into better balance. She expressed a preference for greater confidence that inflation is converging to 2.0% before initiating rate cuts. Cook also acknowledged that the policy rate will eventually need adjustment as the disinflation outlook becomes more sustainable.

• USD/MXN recovers intraday losses to move in the positive direction.
• CME FedWatch Tool indicates a 52.2% probability of a 25 bps rate reduction in June.
• Mexican Retail Sales MoM and YoY declined by 0.9 and 0.2%, respectively in December.

USD/MXN attempts to move in a positive direction after reclaiming intraday losses, maintaining a position near 17.04 during the European session on Thursday. However, the weakening US Dollar (USD) undermines the USD/MXN pair. The Federal Open Market Committee (FOMC) Minutes expressed policymakers' caution regarding the interest rates trajectory, indicating that policy easing will not begin in the upcoming monetary meetings.

The US Dollar Index (DXY) dips to 103.70, while the yields on 2-year and 10-year US bonds stand at 4.67% and 4.30%, respectively, at the time of writing. Market participants have largely dismissed expectations for interest rate cuts in March and May, but speculation persists that the first cut may occur in June. According to the CME FedWatch Tool, there is a 52.2% probability of a 25 basis points (bps) rate reduction in June.

This outlook may be influenced by higher Consumer Price Index (CPI) and Producer Price Index (PPI) figures from January. Investors are eagerly awaiting S&P US PMI data, weekly Initial Jobless Claims, and Existing Home Sales figures on Thursday for further insights into the United States’ economic landscape.

On the Mexican front, Retail Sales in Mexico (YoY) experienced a decline of 0.2% in December, contrary to market expectations of a 2.5% increase and the previous growth of 2.7%. Additionally, Retail Sales month-over-month fell by 0.9%, diverging from the expected increase to 0.2% from the prior 0.1%.

The Mexican Peso (MXN) may encounter downward pressure as market sentiment leans towards a potential 25 basis points (bps) rate cut in March. However, the Bank of Mexico (Banxico) is anticipated to carefully assess economic data before proceeding with its monetary policy easing cycle.

On Monday, Mexico's National Statistics Agency (INEGI) reported a 0.7% month-over-month contraction in Economic Activity (IOAE), despite registering a 1.3% year-on-year growth. Furthermore, Gross Domestic Product and first-half-month Inflation data will be released on Thursday, providing further insights into Mexico's economic landscape.

• USD/MXN edges lower despite improved US Dollar on Wednesday.
• The Mexican Peso could depreciate as ING suggests a possible 25 basis points (bps) rate cut in March.
• The Greenback could face a challenge on subdued US Treasury yields.

USD/MXN retraces its recent gains and inches lower to near 17.05 during the European trading hours on Wednesday. However, the Mexican Peso (MXN) may face downward pressure as economists at ING suggest a possible 25 basis points (bps) rate cut in March, although the Bank of Mexico (Banxico) is expected to proceed cautiously in its rate-cutting cycle.

On Monday, Mexico's National Statistics Agency (INEGI) released the Indicator of Economic Activity (IOAE), indicating a 0.7% month-on-month contraction in the economy, despite a 1.3% year-on-year growth. Additionally, Retail Sales data for December is expected to be released on Wednesday.

The US Dollar Index (DXY) holds steady at around 104.10 after recovering intraday losses. The decline in the US Treasury yields pulls back the US Dollar (USD), which in turn, undermines the USD/MXN pair. The 2-year and 10-year yields on US Treasury coupons stand at 4.59% and 4.26%, respectively, at the time of writing.

The US Federal Reserve is expected to maintain elevated policy rates for an extended period to address persistent inflation concerns, particularly in light of last week's strong consumer and producer prices data from the United States (US).

The prospect of higher interest rates is likely to dampen economic activity in the United States (US), potentially impacting company profits. As a result, investors are turning toward the US bond market, causing prices of US Treasury coupons to rise and pulling yields downward.

Traders are eagerly awaiting the release of the Federal Open Market Committee (FOMC) Minutes later in the North American session to gain further insights into the Federal Reserve's interest rates trajectory.