The USD/MXN currency pair is encountering downward pressure, primarily influenced by the weakened US Dollar (USD), a consequence of the prevailing risk-on sentiment amidst subdued US Treasury yields. As of Thursday’s European session, the pair edged lower to approximately 16.90, paralleling the decline of the US Dollar Index (DXY), which traded at around 103.30.
The diminished performance of US Treasury yields stemmed from Federal Reserve (Fed) Chair Jerome Powell’s testimony before the House Financial Services Committee. Powell hinted at the possibility of rate cuts in 2024, but emphasized that lowering the target range hinges on achieving a higher level of confidence in sustained progress toward the 2% inflation target.
Contributing to the US Dollar’s decline were weaker employment figures from the United States. February’s US ADP Employment Change, though slightly below the expected 150K at 140K, marked an improvement from the previous month’s 111K.
Meanwhile, in Mexico, the National Institute of Statistics and Geography (INEGI) released Consumer Confidence data for February, revealing a marginal decrease from 47.6 to 47.1. The seasonally adjusted figure also dipped to 47.0 from 47.1. Traders are eagerly awaiting Thursday’s release of February’s inflation data, with an anticipated slowdown in headline inflation to 0.11%, compared to the previous month’s rise of 0.89%.
CIBC Capital Markets economists foresee an upward trajectory for the USD/MXN pair, attributing this to the potential divergence between the Bank of Mexico (Banxico) and the Federal Reserve. Anticipating a rate cut by Banxico in March, given the lack of adjustments in reaching the 3% inflation target, they maintain their projection for successive rate reductions starting next month, culminating in an overnight rate of 9.25% by year-end.
