During the early European session on Monday, the USD/MXN pair experienced a decline, retracing after two consecutive days of gains and trading around 17.10. This reversal is attributed to the pressure exerted on the US Dollar (USD) due to subdued US Treasury yields.
The US Dollar Index (DXY) is slightly lower, hovering around 103.90, with the 2-year and 10-year yields on US Treasury notes standing at 4.67% and 4.22%, respectively, at the time of writing. Despite this, the USD has maintained stability following gains in the past two sessions.
The USD received support from robust employment data and mixed Purchasing Managers Index (PMI) figures from the United States (US), reinforcing expectations for the Federal Reserve (Fed) to maintain higher interest rates to address inflationary pressures.
Investors are anticipated to closely monitor key economic indicators later in the week, including Gross Domestic Product Annualized (Q4), Core Personal Consumption Expenditures, and ISM Manufacturing PMI. The release of the Fed Monetary Policy Report will also be closely watched for insights into the central bank‘s stance.
Conversely, the Mexican Peso (MXN) found support from positive economic data released on Friday. The Bank of Mexico (Banxico) reported a substantial increase in the Current Account (Q4) to $11,662M, surpassing expectations and the previous figure. Additionally, the Accumulated Current Account/GDP rose by 2.47% in the fourth quarter of 2023.
Further supporting the MXN, Mexico’s 1st half-month Inflation for February declined against expectations, while the 1st half-month Core Inflation slightly missed expectations but remained steady. Market participants are expected to closely monitor the Trade Balance data for January, scheduled for release on Tuesday, for additional insights into the Mexican economy.
