CFD Trading Rate US Dollar vs Mexican Peso (USDMXN)

• USD/MXN depreciates as growth in Mexico's manufacturing sector remains steady in March.
• S&P Global Mexico Manufacturing PMI came in at 52.2 in March, remaining largely unchanged from 52.3 prior.
• US Dollar could strengthen as traders revise their expectations of Fed rate cuts in June.

USD/MXN retraces its recent gains, depreciating to near 16.60 during the European session on Tuesday. The Mexican Peso (MXN) strengthens as growth in Mexico's manufacturing sector remains steady in March, contributing to the depreciation of the USD/MXN pair.

Moreover, Mexican inflation has increased to 0.27% and 0.33% for both headline and core measures, respectively, in the first half of March. This positive development has allowed the Bank of Mexico (Banxico) to maintain tight borrowing conditions as part of its efforts to address ongoing inflationary pressures.

In March, the headline S&P Global Mexico Manufacturing Purchasing Managers’ Index (PMI) posted a reading of 52.2, remaining largely unchanged from February's 52.3. This signifies continued improvement in the sector's health. Although the growth rate was moderate, it remained above its long-run trend.

Following positive ISM Manufacturing PMI data from the United States (US) on Monday, US Treasury bond yields experienced a surge, consequently limiting the decline of the USD/MXN pair.

The US ISM Manufacturing PMI revealed an unexpected expansion in March, with the index rising to 50.3 from February's 47.8, surpassing expectations of 48.4. This reading marked the highest level observed since September 2022. Additionally, US ISM Manufacturing Prices Paid increased to 55.8 in March, surpassing both the expected 52.6 and the prior reading of 52.5.

The US Dollar Index (DXY) maintains its upward momentum, extending its winning streak for the fifth consecutive session and trading around 105.00 at present. This favorable trend is attributed to traders revising their expectations for a quarter-point interest rate cut by the Federal Reserve during its June meeting.

• USD/MXN receives pressure following Fed Chair Powell's reaffirmation of the Fed's stance on rate cuts in 2024.
• The decline in Mexico’s Jobless Rate has enabled Banxico to uphold tight borrowing conditions to tackle inflation.
• US ISM Manufacturing PMI is anticipated to improve to 48.4 in March, from 47.8 prior.

USD/MXN maintains its position below 16.60, attempting to extend losses for the second successive session on Monday. The Mexican Peso (MXN) has strengthened as the domestic Jobless Rate unexpectedly declined to 2.5%, reaching an eleven-month low and surpassing expectations of 2.8%. This positive development has enabled the Bank of Mexico (Banxico) to uphold tight borrowing conditions in its efforts to tackle persistent inflation.

Inflation has risen to 0.27% and 0.33% for both headline and core measures, respectively, in the first half of March. Additionally, traders will eagerly await the release of Consumer Confidence data for March, scheduled for Thursday.

The US Dollar Index (DXY) encounters difficulties amid lower US Treasury yields, hovering around 104.50, with the 2-year and 10-year yields on US bond coupons standing at 4.59% and 4.19%, respectively, at the time of writing. The US Dollar (USD) is facing challenges following dovish remarks made by Federal Reserve (Fed) Chairman Jerome Powell on Friday.

Fed Chair Powell indicated that the recent Personal Consumption Expenditures Price Index (PCE) data from the United States (US) met expectations, reaffirming the Fed's stance on potential interest rate cuts for the year. Fed officials maintain projections of three rate cuts for the year, with market participants expecting the first of these cuts to occur at the June meeting.

Traders may adopt a cautious stance ahead of the release of the ISM Manufacturing Purchasing Managers Index (PMI) data from the United States (US) scheduled for later in the North American session.

• USD/MXN falls to 16.57, as the latest US inflation report met forecasts, offering no new impetus for market shifts.
• Fed officials, including Governor Waller, signal a cautious approach to rate cuts, underlining vigilance over inflation trends.
• Investors await further guidance from upcoming Fed speeches..

The Mexican Peso (MXN) posted modest gains against the US Dollar (USD) on Friday after the release of inflation data in the United States (US). The Federal Reserve’s (Fed) preferred gauge for inflation, the Core Personal Consumption Expenditure (PCE) price index, met estimates, though it failed to trigger any reaction in the financial markets. The USD/MXN trades at 16.57, down 0.31%.

USD/MXN dips as US inflation aligns with expectations

The US Bureau of Economic Analysis (BEA) reported that February's Core PCE increased by 0.3% month-over-month, coming in lower than the prior month's figures. On an annual basis, the core PCE cooled slightly from 2.9% to 2.8%, aligning with consensus estimates. The headline inflation rate for February also stood at 0.3%, below January's projections, while the year-over-year figure edged up to 2.5% from 2.4%.

Despite somewhat easing inflation, Federal Reserve policymakers remain vigilant. Other inflation metrics, such as the Consumer Price Index (CPI) and the Producer Price Index (PPI), indicate that price pressures could be anchoring above 3%.

Aside from this, traders took some cues from Fed Governor Christopher Waller. He was hawkish, emphasizing that the Fed is not in a hurry to reduce interest rates. The US economic docket will feature San Francisco Fed President Mary Daly and Fed Chair Jerome Powell at 15:20 and 15:30 GMT.

On the Mexican front, the docket will feature the Mexican Ministry of Finance's release of the fiscal balance. Traders are eyeing next week’s S&P Global Manufacturing PMI for March.

USD/MXN Price Analysis: Technical outlook

The USD/MXN trimmed some of its gains today as buyers failed to conquer last year’s low of 16.62. That has opened the door for a pullback, as sellers eye October’s 2015 low of 16.32 ahead of challenging 16.00. On the flip side, if buyers lift the exchange rate above 16.62, that will expose January’s monthly low of 16.78, followed by the March 19 high at 16.94. Next would be the 50-day Simple Moving Average (SMA) at 16.97.

• Mexican Peso slips from multi-year lows, reacting to optimistic US growth figures and labor market resilience.
• Strong US GDP growth in Q4 2023 and a robust labor market boosted the US Dollar, a headwind for the Mexican currency.
• Fed’s Waller remains hawkish, adhering to the “higher for longer” mantra.

The Mexican Peso was on the defensive against the US Dollar on Thursday, with buyers capitalizing on the exotic pair's dip toward an over eight-year low of 16.51. Hawkish comments by Federal Reserve (Fed) Governor Christopher Waller and an absent Mexican economic docket sponsored a leg up in the USD/MXN. At the time of writing, the pair trades at 16.62, up  0.50%.

In addition to Fed speeches, US economic data has been the main driver of price action. The US Bureau of Economic Analysis (BEA) revealed that the US economy grew above estimates in the last quarter of 2023, as measured by the Gross Domestic Product (GDP). At the same time, a report by the US Bureau of Labor Statistics (BLS) portrayed a tight labor market, with fewer Americans applying for unemployment benefits.

Further data showed an improvement in the housing market as Pending Home Sales recovered in February from January.

Daily digest market movers: Mexican Peso weighed by hawkish comments of Fed’s Waller

• On Monday, Banxico Governor Victoria Rodriguez Ceja remained dovish via an interview with El Financiero. Governor Rodriguez commented that the battle against inflation hasn’t been concluded, though adding that it would discuss further rate cuts to the main reference rate in upcoming meetings. “When macroeconomic conditions and the inflationary outlook allow us to make additional adjustments to the reference rate to the one we already have, I consider that they would be gradual.”
• Banxico revealed that international reserves grew to $216.9 billion, adding $411 million in US Dollars through March 22.
• Mexico’s Balance of Trade in February printed a deficit of $-0.5 billion, lower than the $-4.31 billion in January but missing expectations of $-0.2 billion. Other data showed that the Unemployment Rate in February dropped from 2.9% to 2.5%, which is below the consensus of 2.8%.
• Mexico’s Indicator of General Economic Activity flashed signs of contraction in January, justifying Banxico’s 25-basis-point rate cut on March 21.
• Fed Governor Christopher Waller delivered hawkish remarks on Wednesday, said that rates need to be higher for longer than expected and that more inflation progress is needed before supporting a rate cut. He sees the beginning of the easing cycle in 2024, though he suggests that back-to-back months of inflation data heading to 2% are needed.
• The GDP in the US rose by 3.4%, exceeding the preliminary reading of 3.2%, an indication of a strong economy. The Core Personal Consumption Expenditure (PCE) for Q4 2023 hit the Fed’s target of 2% QoQ.
• Initial Jobless Claims for the week ending March 23 rose to 210K, below market expectations of 215K and lower than the previous week. The data shows that the labor market remains tight, which could deter the Fed from cutting rates.
• The University of Michigan Consumer Sentiment index rose to its highest level since July 2021, climbing to 79.4, exceeding estimates of 76.5. Pending Home Sales recovered in February, increasing 1.6% MoM after plunging -4.7% in January and above the consensus of 1.5%.

Technical analysis: Mexican Peso is on the backfoot as USD/MXN edges toward the 16.60 region

The USD/MXN posted a reversal after dropping to a multi-year low of 16.51, with buyers emerging at around those levels, lifting the exchange rate to the 16.60 region. Nevertheless, they’re facing strong resistance at the previous year's low of 16.62, which turned resistance. A breach of the latter will expose January’s monthly low of 16.78, followed by the March 19 high at 16.94. Up next would be the 50-day Simple Moving Average (SMA) at 16.97.

On the other hand, if the pair dives below 16.51, look for a test of October’s 2015 low of 16.32, ahead of the 16.00 psychological figure.

USD/MXN Price Action – Daily Chart

• USD/MXN gains ground on risk aversion ahead of US GDP Annualized.
• Mexico’s Jobless Rate stood at 2.5% in February, against the expected 2.8%.
• The higher US Treasury yields contribute support for the US Dollar.

USD/MXN halts its three-day losing streak, advancing to near 16.60 during the European hours on Thursday. However, the Mexican Peso received upward support, which could be attributed to the softer Jobless Rate, consequently, undermining the USD/MXN pair.

The unemployment rate in Mexico decreased to 2.5% from 2.7% in the same period a year earlier, surpassing market forecasts of 2.8%. The number of unemployed individuals decreased by 137,000 to 1.5 million, while the number of employed individuals rose by 1.1 million to 59.4 million.

This situation allows the Bank of Mexico (Banxico) to continue implementing tight borrowing conditions as a means to address persistent inflationary pressures. Inflation has consistently exceeded expectations, as observed in both headline and core measures during the mid-March assessment.

Traders adopt a cautious stance ahead of the release of Gross Domestic Product Annualized and Initial Jobless Claims data scheduled for Thursday, with Personal Consumption Expenditures set to be revealed on Friday.

The US Dollar Index (DXY) has risen to nearly 104.60, supported by higher yields on US coupon bonds, with the 2-year and 10-year yields standing at 4.62% and 4.21%, respectively, at the time of writing. However, conflicting views among members of the Federal Open Market Committee (FOMC) regarding monetary policy easing are contributing to market uncertainty.

Federal Reserve Board Governor Christopher Waller continues to advocate for a cautious approach toward rate cuts, citing persistent inflation data. Atlanta Fed President Raphael Bostic shares this sentiment, anticipating only one rate cut this year and warning against premature reductions that could exacerbate economic disruptions.

• USD/MXN appreciates ahead of Jobless Rate, Trade Balance from Mexico.
• The decline in the US Treasury yields could limit the advance of the US Dollar.
• Banxico Governor Victoria Rodriguez Ceja emphasized that the fight against inflation is not yet over.

USD/MXN retraces its recent losses registered in the previous two sessions. The Mexican Peso (MXN) gains ground ahead of the Jobless Rate and Trade Balance data from Mexico. The USD/MXN pair advances to near 16.60 during the European trading hours on Wednesday.

INEGI’s Mexican economic activity gauge expanded, rebounding from the two-year low but missing the estimated increase. Despite the slight rebound, the result aligned with the trend that the Mexican economy is losing its resilience to restrictive interest rates by Banxico.

Banxico Governor Victoria Rodriguez Ceja maintained a dovish stance during an interview. Rodriguez emphasized that the fight against inflation is not yet over, indicating that discussions regarding further rate cuts to the main reference rate would be on the agenda in upcoming meetings.

US Dollar Index (DXY) extends its gains for the second session, trading higher near 104.40 during the European hours on Wednesday. The 2-year and 10-year yields on US Treasury bonds stand at 4.59% and 4.22%, by the press time.

Atlanta Fed President Raphael Bostic anticipates only one rate cut this year, cautioning against premature reductions due to the potential for heightened disruption. Conversely, Chicago Fed President Austan Goolsbee aligns with the majority of the board, forecasting three cuts.

The US Dollar (USD) receives upward support from the prevailing market risk aversion ahead of the upcoming release of the US Gross Domestic Product Annualized on Thursday and Personal Consumption Expenditures (PCE) scheduled for Friday.

Economists at ING are fearful the Mexican Peso (MXN) is starting to become a little too strong.

Peso to hold gains despite start of Banxico easing

• USD/MXN could receive upward support on hawkish comments from Fed members.
• The Mexican Peso could potentially benefit from a risk-on sentiment.
• The lower US Treasury yields could undermine the US Dollar.

USD/MXN recovers recent losses, putting efforts to climb higher to nearly 16.70 during the European session on Tuesday. The US Dollar (USD) gains ground, driven by hawkish remarks from US Federal Reserve (Fed) officials. Suggestions from Fed members to delay interest rate cuts have bolstered the idea of maintaining elevated interest rates for a longer period.

Atlanta Fed President Raphael Bostic's expectation of only one rate cut this year reflects caution against premature reductions that could lead to disruption. Conversely, Chicago Fed President Austan Goolsbee emphasized the necessity for further evidence of declining inflation before advocating for such rate adjustments.

The USD/MXN pair experienced downward pressure amidst a risk-on sentiment, while the Mexican Peso (MXN) strengthened despite the recent interest rate cut by the Bank of Mexico (Banxico). Banxico Governor Victoria Rodriguez Ceja commented that the initial rate reduction doesn't signify the end of the battle against inflation. She emphasized the central bank's cautious approach, indicating that adjustments to the main reference rates would be gradual and based on forthcoming data.

The Banxico lowered interest rates due to significant declines in both inflation and growth over the past year. The SNB projects inflation to average 1.9% in 2024, although the current inflation rate remains notably lower at 1.2%. However, there was a noteworthy increase in the Consumer Price Index (CPI) in February, rising by 0.6% compared to the previous month's 0.2% increase.

Economists at Société Générale analyze USD/MXN technical outlook.

Risk of deeper decline if 200-DMA near 17.20 not overcome

Banxico announced its latest rate decision on Thursday, March 21, when it decided to cut rates for the first time since 2021. USD/MXN barely moved on the decision. Economists at Rabobank analyze the pair’s outlook.

Support at 16.60 to hold

• USD/MXN extend its winning streak for the third successive session on Friday.
• S&P Global Manufacturing PMI rose to 52.5 against the expected 51.7 and 52.2 prior.
• Banxico has lowered its interest rates by 25 bps to 11.0% in its March policy meeting.

USD/MXN rises on stronger US Dollar (USD) following mixed S&P preliminary Purchasing Managers Index (PMI) data and robust weekly Jobless Claims from the United States (US). The pair trades higher around 16.80 during the European session on Friday.

Additionally, the Bank of Mexico (Banxico) has reduced its interest rates by 25 basis points (bps) to 11.0% in a March policy meeting held on Thursday. This has contributed to the downward pressure on the Mexican Peso (MXN), consequently, underpinning the USD/MXN pair.

Additionally, the Bank of Mexico is set to release the 1st half-month Core Inflation for March, with expectations of a 0.26% increase, compared to the previous increase of 0.24%. The 1st half-month Inflation is anticipated to show a rise of 0.28%, a turnaround from the previous decline of 0.1%.

In March, the S&P Global Services PMI showed a slight decline, dropping to 51.7 from 52.3, slightly below the expected reading of 52.0. On the other hand, the Manufacturing PMI increased to 52.5, surpassing expectations of 51.7 and the previous figure of 52.2. Initial Jobless Claims for the week ending on March 15 came in at 210K, below the 215K expected and 212K prior.

The US Dollar Index (DXY) has continued to strengthen despite lower US Treasury yields. However, the US Dollar encountered challenges following the Federal Reserve's (Fed) reaffirmation of expectations for three interest rate cuts in 2024. The prevailing consensus indicates the commencement of an easing cycle in June, with the timing of subsequent cuts dependent on incoming data.

USD/MXN is probing last year's low of 16.60. Economists at Société Générale analyze the pair’s technical outlook.

Move beyond 17.00/17.20 essential to confirm a meaningful up move

• Mexican Peso up vs. US Dollar, eyes on Fed and Banxico meetings.
• Banxico may ease policy, affecting USD/MXN as rates diverge in favor of Greenback.
• Mexico's inflation data on Thursday to hint at Peso's path.
• Fed's rate stance and hawkish cues might underpin USD/MXN with resistance levels the focus.

The Mexican Peso (MXN) recovers some territory on Wednesday against the US Dollar (USD) ahead of the US Federal Reserve’s (Fed) monetary policy decision at 18:00 GMT. During the first half of the week, the Mexican currency has been on the defensive amid speculation that on Thursday the Bank of Mexico – also known as Banxico – might begin its easing cycle. Consequently, the reduction of the interest rate spread between the US and Mexico could underpin the Greenback. At the time of writing, the USD/MXN trades at 16.78, down 0.14%.

Mexico’s economic calendar remains absent on Wednesday, but it will gather pace on Thursday. Besides Banxico’s decision, economic growth data and mid-month inflation figures in March, which are expected to remain virtually unchanged compared to previous readings, could impact the USD/MXN exchange rate.

The market anticipates the Fed maintaining interest rates at their current levels, but there is speculation of a hawkish tilt. This could potentially impact the USD/MXN exchange rate. Policymakers will update their economic and monetary policy projections – the so-called Dot Plot. If just two of the dots move up, that would indicate the Fed is considering two interest rate cuts instead of the three initially projected in the December meeting.

That could drive the USD/MXN higher toward the 17.00 figure, and buyers could threaten to break key resistance levels.

Daily digest market movers: Mexican Peso shrugs off Banxico’s imminent cut and rises

• Estimates that Banxico will lower the interest rate from 11.25% to 11% put “some” pressure on the Mexican currency, which could lift the USD/MXN toward the 17.00 mark.
• Mexico’s economic data released in the week:
  • Aggregate Demand rose by 0.3% QoQ in Q4, up from 0%. On an annual basis, it decelerated from 2.7% to 2.6%.
  • Private Spending on a quarterly basis slowed from 1.2% to 0.9%. On a yearly basis, it improved from 4.3% to 5.1%.
• On March 21, Banxico is expected to decrease interest rates, even though it could feature a 3-2 vote split. Recent speeches and media appearances show that Banxico’s Governing Council is divided, with Governor Victoria Rodriguez Ceja, Omar Mejia Castelazo and Galia Borja Gomez leaning dovish. On the hawkish front lie Jonathan Heath and Irene Espinosa Cantellano.
• The slowdown in Mexico’s economy is one of the main reasons that Banxico is eyeing the first cut. Mexico’s central bank expects the economy to grow 2.8% YoY in 2024, down from 3%, but maintained at 1.5% for 2025.
• The latest inflation figures in the United States prompted investors to price in a less dovish stance. Money market futures have adjusted their rate cut expectations to be more in line with the Fed's as they foresee the Federal Funds Rate (FFR) at 4.71% toward the end of the year. Analysts estimate the Fed will not change its Federal Funds Rates (FFR) level until June or later.
• US Treasury bond yields drop, but the US Dollar Index (DXY) advances 0.13%, up at 103.95, capping the USD/MXN fall.

Technical analysis: Mexican Peso counterattacks as USD/MXN slumps below 16.80

The USD/MXN is neutral to downwardly biased after buyers lifted the exchange rate to a weekly high of 16.94 before retreating beneath 16.80. If the pair extends its losses below 16.78, the January 8 swing low, that could exacerbate a test of last year’s low of 16.62 before diving to 16.32, the October 2015 low.

On the other hand, if buyers lift the pair above the current week’s high of 16.94, that would pave the way for testing 17.00. The next key resistance levels would be the 50-day Simple Moving Average (SMA) at 17.02, the 100-day SMA at 17.16, and the 200-day SMA at 17.21.

USD/MXN Price Action – Daily Chart

• USD/MXN recovers its recent losses recorded in the previous session.
• US Dollar appreciates despite weaker US Treasury yields.
• Banxico is expected to reduce the interest rate by 25 bps at Thursday’s meeting.

USD/MXN retraces its recent losses and moves higher to near 16.80 during Wednesday's European trading hours. The US Dollar (USD) gains ground, despite weaker US Treasury yields, which in turn, bolsters the USD/MXN pair.

The US Dollar Index (DXY) rises to near 104.00, with 2-year and 10-year yields on US Treasury bonds standing lower at 4.67% and 4.27%, at the time of writing. Investors are eagerly awaiting the interest rate decision from the US Federal Reserve (Fed) scheduled for Wednesday.

The Federal Open Market Committee (FOMC) is widely expected to maintain its key federal funds interest rate within a range of 5.25% to 5.50%. According to the CME FedWatch Tool, the probability of a rate cut in May stands at 6.3%, while the likelihood of rate cuts in June and July has increased to 59.2% and 76.0%, respectively.

In February, US Building Permits (Month-on-Month) surged to 1.518 million, surpassing both the anticipated 1.495 million and the previous 1.489 million. Additionally, US Housing Starts (Month-on-Month) climbed to 1.521 million, exceeding market forecasts of 1.425 million and marking a notable increase from the preceding 1.374 million.

In the fourth quarter of 2023, Private Spending (Year-over-Year) on the Mexican side witnessed a 5.1% increase, up from the previous 4.3% rise. However, the quarter-over-quarter report indicated a 0.9% increase, slightly below the previous 1.2% uptick. Market focus will shift to Retail Sales figures from Mexico, scheduled for Wednesday.

In Banxico's quarterly report, officials acknowledged strides in inflation control and emphasized the importance of avoiding premature interest rate cuts. The spotlight now turns to the Bank of Mexico's (Banxico) interest rate decision on Thursday, with expectations leaning towards a 25 basis points reduction.

• USD/MXN gains ground on speculation of the Fed’s extending policy tightening.
• Banxico is expected to reduce its interest rate to 11.0% from 11.25%.
• US Dollar strengthens on improved US Treasury yields.

USD/MXN continues its upward trend, reaching near 16.90 and marking gains for the fourth consecutive session on Tuesday. Traders are awaiting Private Spending data on Tuesday and Retail Sales figures on Wednesday from Mexico. Furthermore, attention is on the Bank of Mexico's (Banxico) interest rate decision on Friday, with expectations of a 25 basis points reduction.

In Banxico's quarterly report, officials acknowledged progress in inflation control and stressed the importance of avoiding premature interest rate cuts. However, recent speeches and media appearances indicate a division within Banxico's Governing Council. Governor Victoria Rodriguez Ceja, Omar Mejia Castelazo, and Galia Borja Gomez lean dovish, while Jonathan Heath and Irene Espinosa Cantellano take a more hawkish stance.

An economic slowdown in Mexico stands out as the primary event that could prompt Banxico's first rate cut, as the central bank has revised its economic projections downward. Despite Mexico's Industrial Production surging over twelve months, surpassing December's stagnant performance, this could bolster the hawkish stance of Banxico.

Meanwhile, the US Dollar (USD) strengthens to near 103.90, driven by improved US Treasury yields at 4.73% and 4.32% for 2-year and 10-year US bond coupons, respectively. Investors eagerly await the interest rate decision from the US Federal Reserve (Fed), expected to be announced on Wednesday. The Federal Reserve (Fed) is expected to maintain its elevated interest rates in response to recent inflationary pressures.

Economists at Société Générale analyze USD/MXN technical outlook.

Cross above 200-DMA near 17.00/17.20 crucial to avert one more leg of decline

• USD/MXN consolidates as risk aversion prevails ahead of policy decisions by the US Fed.
• The correction in US Treasury yields could weaken the US Dollar.
• Banxico is expected to reduce the 25 bps interest rate on Thursday.

USD/MXN hovers around 16.70 during the European session on Monday, marking gains for the third consecutive day. The US Dollar (USD) benefited from market caution ahead of the US Federal Reserve's interest rate decision on Wednesday.

However, the US Dollar faces downward pressure due to a correction in US Treasury yields. The US Dollar Index (DXY) hovers around 103.40, while the 2-year and 10-year US Treasury yields stand at 4.71% and 4.29%, respectively. Despite this, yields have risen recently due to a hawkish sentiment surrounding the Federal Reserve, which is expected to maintain its elevated interest rates in response to recent inflationary pressures.

In economic news, the preliminary US Michigan Consumer Sentiment Index for March declined to 76.5 from the previous reading of 76.9, contrary to expectations of remaining steady. However, Industrial Production (MoM) in February edged up by 0.1%, surpassing the anticipated flat reading of 0.0% and recovering from the previous month's decline of 0.5%.

On the other side, Mexico's Industrial Production surged by 2.9% over twelve months, surpassing December's stagnant performance. This could bolster the hawkish stance of the Bank of Mexico (Banxico).

In Banxico's quarterly report, officials acknowledged progress in inflation control and emphasized the importance of avoiding premature interest rate cuts. Governor Victoria Rodriguez Ceja has advocated for a gradual approach to adjustments, while Deputy Governor Jonathan Heath has cautioned against the risks associated with premature rate cuts.

Traders will eagerly await the release of Private Spending Retail Sales and Inflation data during the week. Furthermore, Banxico's interest rate decision is scheduled to be released on Thursday.

• USD/MXN strengthens on risk-off sentiment after upbeat US inflation data.
• The US Dollar remains firmer despite the correction in the US Treasury yields.
• Banxico Deputy Governor Omar Mejia suggested the potential for an interest rate cut.

USD/MXN expands gains for the second consecutive day on Friday, bouncing back from the eight-month low at 16.64 reached on Thursday. At the time of writing, the USD/MXN pair attempts to extend its gains, trading around 16.70 during the European trading hours.

The upbeat US Core Producer Price Index (PPI) data for February, with a 2.0% year-over-year increase, exceeding expectations of 1.9%, has strengthened the US Dollar. This in turn supports the USD/MXN pair.

The recent economic indicators pose challenges for the Federal Reserve's decision-making process regarding interest rate cuts. Traders are eagerly awaiting the preliminary US Michigan Consumer Sentiment Index for March on Friday to gain insights into the Federal Reserve’s policy trajectory.

Officials from the Bank of Mexico (Banxico) have underscored the importance of avoiding premature interest rate cuts. Governor Victoria Rodriguez Ceja has advocated for a gradual approach to adjustments, while Deputy Governor Jonathan Heath has warned against the risks associated with premature rate cuts.

However, Banxico Deputy Governor Omar Mejia hinted at the possibility of an interest rate cut in a podcast on Wednesday, arguing that it wouldn't be premature given the high level of rates maintained by the bank. The market is pricing in expectations that Banxico could cut rates as soon as the March 21 meeting.

• USD/MXN gains ground as the US Dollar appreciates higher US yields.
• The upbeat US CPI has tempered expectations for immediate interest rate cuts by the US Fed.
• Banxico members indicated avoiding premature interest rate cuts.

USD/MXN breaks its losing streak that commenced on February 29, attributed to the strengthened US Dollar (USD). The pair climbs to approximately 16.70 during Thursday's European session. Traders are eagerly awaiting the release of the US Core Producer Price Index (PPI) and Retail Sales data later today.

The US Dollar Index (DXY) appreciates to nearly 102.90, with 2-year and 10-year yields on US Treasury bonds standing at 4.64% and 4.20%, respectively, at press time. The upbeat US Consumer Price Index (CPI) has dampened expectations for immediate interest rate cuts by the Federal Reserve (Fed). Nevertheless, market participants maintain their bets on rate reductions in June, with a probability of 67.2%, as reported by the CME FedWatch Tool.

The Mexican peso has garnered upward momentum, reaching its highest level since November 2015. This trend can be attributed to the hawkish sentiment surrounding the Bank of Mexico (Banxico), which is inclined to prolong its restrictive monetary policy. Banxico's policymakers have acknowledged the progress made in controlling inflation in their quarterly report.

However, Banxico officials have emphasized the importance of avoiding premature interest rate cuts. Governor Victoria Rodriguez Ceja has advocated for a gradual approach to adjustments, while Deputy Governor Jonathan Heath has cautioned against the risks associated with premature rate cuts.

In January, Mexico’s Industrial Output (YoY) witnessed a significant surge, contrasting with the previous flat reading. Additionally, on a monthly basis, there was an increase as anticipated, reversing the previous decline. Despite the annual inflation rate decreasing from a seven-month high in January, Core Inflation experienced a higher increase compared to the previous reading. The upcoming policy meeting of the Bank of Mexico (Banxico), is scheduled for March 21, which will likely provide insights into the central bank's approach towards monetary policy stance.