USD/MXN extends losses despite an improved US Dollar, trades around 17.13

• USD/MXN edges lower amid a stronger US Dollar.
• The Mexican Peso gains ground after GDP data for Q4 from INEGI.
• US Dollar appreciates possibly due to the risk aversion sentiment.

USD/MXN loses ground for the second consecutive day ahead of the US Federal Reserve’s (Fed) interest rate decision. Federal Open Market Committee (FOMC) is widely anticipated to maintain its interest rates at 5.5%. However, the CME’s FedWatch Tool suggests a 43% chance of the Fed implementing the first rate cut in March. The USD/MXN pair inches lower to near 17.13 during the European session on Wednesday.

The US Dollar Index (DXY) is appreciating, riding on positive momentum despite the downbeat US Treasury yields. The US Dollar Index (DXY) hovers around 103.50, by the press time. On Tuesday, the US JOLTS Job Openings for December increased to 9.026M against the previous figure of 8.925M and surpassed the anticipated 8.7500M. The US Housing Price Index (MoM) remained consistent at 0.3% in November.

Furthermore, Investors will likely closely scrutinize US ADP Employment Change data as it helps to gauge the potential direction and health of the job market. The subsequent release of the US Nonfarm Payrolls report will provide a more detailed and comprehensive overview of the employment landscape in the United States (US).

The Mexican Peso (MXN) seems to cheer the data from INEGI, which showed that the Mexican GDP for the fourth quarter of 2023 expanded by 0.1% on a quarter-on-quarter basis. However, this figure falls below forecasts of 0.4% and is lower than the 1.1% expansion achieved in the third quarter. On an annual basis, the preliminary reading of GDP showed a rise of 2.4%, missing forecasts of 3.1% and down from 3.3% in the third quarter.

Furthermore, first-half-month inflation data during the last week indicated a resurgence in inflation in Mexico. Additionally, the Mexican Jobless Rate displayed a contraction in the number of unemployed workers in the country. Given these economic indicators, there is speculation that the figures may discourage the Bank of Mexico (Banxico) from considering a reduction in interest rates in its February meeting.