During Tuesday’s European session, the USD/MXN pair showcased a recovery from recent setbacks, edging closer to the 16.70 mark. This resurgence of the US Dollar (USD) was propelled by hawkish sentiments emanating from US Federal Reserve (Fed) officials. The suggestion from Fed members to defer interest rate cuts has reinforced the notion of maintaining elevated interest rates for an extended duration.
Atlanta Fed President Raphael Bostic’s projection of only one rate cut this year signals a cautious stance against premature monetary adjustments that could potentially disrupt economic equilibrium. In contrast, Chicago Fed President Austan Goolsbee stressed the imperative of garnering further evidence of declining inflation before advocating for any rate adjustments.
Amidst a prevailing risk-on sentiment, the USD/MXN pair encountered downward pressure, despite the strengthening of the Mexican Peso (MXN) following the recent interest rate cut by the Bank of Mexico (Banxico). Banxico Governor Victoria Rodriguez Ceja clarified that the initial rate reduction does not mark the conclusion of efforts to combat inflation. She underscored the central bank‘s measured approach, highlighting that modifications to the main reference rates would be gradual and contingent upon forthcoming economic indicators.
The decision to lower interest rates by Banxico was prompted by significant declines in both inflation and growth over the past year. While the SNB projects inflation to average 1.9% in 2024, the current inflation rate stands notably lower at 1.2%. However, February witnessed a noteworthy uptick in the Consumer Price Index (CPI), registering a 0.6% increase compared to the previous month’s 0.2% rise.
