CFD Trading Rate US Dollar vs Mexican Peso (USDMXN)

• USD/MXN snaps a two-day winning streak ahead of US PMI data
• The decline in the US bond yields undermines the US Dollar.
• Banxico’s former Governor Agustin Carstens suggested being cautious before making policy decisions.

USD/MXN moves in a downward direction after registering gains in the previous two sessions. The USD/MXN pair trades lower near 17.23 during the European session on Wednesday. The US Dollar (USD) experiences a decline, attributed to a decrease in US bond yields, which may be influenced by expectations of the Federal Reserve (Fed) initiating rate cuts starting in May. The market is fully pricing in a 25 basis point (bps) cut in interest rates for May.

Additionally, former St. Louis Fed President James Bullard presented his perspective, proposing the possibility of the Federal Reserve (Fed) implementing interest rate cuts even before inflation reaches the 2.0% threshold. Bullard speculates that these cuts could potentially take place as early as March.

Agustin Carstens, the former Governor of the Bank of Mexico (Banxico) emphasized the importance of not lowering interest rates prematurely. He stated "Recent developments allow policymakers to look at the future with cautious optimism." Carstens' comments suggest a measured approach to monetary policy decisions in response to current economic conditions.

The performance of the Mexican Peso (MXN) could be significantly influenced by factors associated with the United States (US), according to TD Securities. The interconnection between the Mexican Peso and US-related factors underscores the importance of monitoring developments in the US economy for insights into the trajectory of the MXN.

Looking forward, the Bank of Mexico (Banxico) is scheduled to release the first half-month inflation data for January on Wednesday. This data release is anticipated to provide valuable information about inflation trends in Mexico, which can impact Banxico's decisions regarding interest rates and monetary policy in the upcoming meetings.

USD/MXN reversed after briefly testing the 200-Day Moving Average (DMA). Economists at Société Générale analyze the pair’s outlook.

17.42/17.55 likely to cap upside

• USD/MXN gains ground on improved US Treasury yields.
• Mexican Peso could perform on factors associated with the United States.
• Fed members’ remarks indicated a more hawkish interest rate trajectory.

USD/MXN extends its gains and trades around 17.22 during the European trading hours on Tuesday. The US Dollar Index (DXY) trades lower near 103.10, while the 2-year and 10-year yields on US bond coupons trade at 4.40% and 4.12%, respectively, by the press time.

According to TD Securities analysis, the performance of the Mexican Peso (MXN) is notably influenced by factors associated with the United States (US). The market sentiment reflects the expectation that the Federal Reserve (Fed) will cut interest rates more than any other major central bank in 2024. However, the recent hawkish remarks, from Fed members indicate a shift in the Fed's stance towards a more hawkish trajectory for interest rates, providing support for the Greenback.

If the US Federal Reserve (Fed) adopts an aggressive cutting cycle in 2024, it could prompt markets to factor in more rate cuts by the Bank of Mexico (Banxico), potentially resulting in underperformance of the Mexican Peso. Market sentiment suggests that the upcoming 2024 elections in both Mexico and the US could exert additional pressure on the performance of the Mexican Peso.

The recent data on Mexico's Retail Sales indicates a slowdown in the growth of consumer spending. Looking ahead, the Banxico is set to release the 1st half-month Inflation data for January on Wednesday. Market expectations anticipate a reading of 0.38%, declining from the previous reading of 0.58%, with core inflation expected to report a figure of 0.28% against the previous reading of 0.46%. These indicators will be closely monitored for their potential impact on monetary policy and the performance of the Mexican Peso, which in turn, influences the USD/MXN pair.

On the US docket, the release of the Richmond Fed Manufacturing Index for January, scheduled for later in the North American session, will provide additional insights into the current state of the US economy.

• USD/MXN attempts to snap its losing streak on improved Greenback.
• US Dollar could face pressure as the Fed is expected to reduce policy rates more than other major central banks in 2024.
• The downbeat Mexico Retail Sales data might have put downward pressure on the MXN.

USD/MXN snaps a three-day losing streak amid an improved US Dollar (USD). The USD/MXN pair trades higher near 17.10 during the early European hours on Monday. The US Dollar Index (DXY) rising to near 103.20 with improved 2-year and 10-year yields on US Treasury bond coupons standing at 4.41% and 4.12%, respectively, at the time of writing.

However, the US Dollar encountered downward pressure due to prevailing market expectations leaning towards the US Federal Reserve (Fed) reducing policy rates more than other major central banks in 2024. However, the Greenback may find support, benefiting from its safe-haven status, especially amid concerns surrounding maritime trade in the Red Sea. Consequently, this contributes upward support to underpinning the USD/MXN pair.

The heightened geopolitical threat, as the United States (US) and the United Kingdom (UK) aim to escalate their campaign without triggering a broader conflict with Iran, has led to more ships diverting away from the Suez Canal and the Red Sea. This redirection is prompting shipping vessels to carefully assess the risks associated with navigating the Red Sea, with rising insurance costs becoming a significant consideration.

On the other side, the Retail Sales released by INEGI on Friday showed a decline in the retail sales in Mexico in November. The annual growth reduced to 2.7% from the previous increase of 3.4%, falling short of expected 3.2%. In the meantime, the monthly sales came at 0.1% against the expected 0.5%. The previous reading was 0.8%.

The Bank of Mexico (Banxico) will release the 1st half-month Inflation data for January on Wednesday. The market expects a reduction to 0.38% from the 0.58% prior. While the core inflation could report a figure of 0.28% against the previous reading of 0.46%.

• USD/CAD moves sideways with a positive bias toward an upward direction.
• US Dollar rose as investors’ sentiment toward Fed rate cuts diminished.
• The upcoming US and Mexican elections could put further pressure on MXN.

USD/MXN trims its intraday gain and continues its losing streak for the third straight session, trading near 17.16 during the European trading hours on Friday. However, the US Dollar (USD) received upward support as market participants have trimmed their bets on speculation of early interest rate cuts by the Federal Reserve in March, which could be attributed to the robust key economic data from the United States (US).

Additionally, the geopolitical tension in the Middle East turned the investors’ sentiment into risk aversion, which caused the increased demand for the US Dollar (USD). Additionally, the higher US bond yields contribute support to underpinning the Greenback. The 2-year and 10-year yields on US bond coupons trade at 4.35% and 4.15%, respectively, by the press time.

US Federal Reserve Bank of Atlanta President Raphael Bostic delivered remarks on Thursday at an event hosted by the Atlanta Chamber of Commerce. Bostic mentioned that the Fed's base case is to contemplate rate cuts in the third quarter, while also leaving open the possibility for an earlier commencement of the rate cut cycle, depending on inflation figures. Furthermore, traders will closely watch the US preliminary Michigan Consumer Sentiment Index, anticipating an improvement in January.

On Mexico’s side, markets have a sentiment that the upcoming 2024 elections in both Mexico and the US could potentially put further pressure on the performance of the Mexican Peso. Throughout the week, Mexico's economic calendar did not feature notable events, and market participants are now looking forward to the release of November's Retail Sales data on Friday. Projections indicate a month-over-month and year-over-year decrease at 0.5% and 3.2%, respectively, falling short of the previous figures.