Anna 
During the early European session on Friday, the USD/MXN pair has rebounded from intraday losses, stabilizing near 17.05 and closely trading around the weekly low established at 17.03 on Thursday. The Mexican Peso (MXN) exhibits strength against the US Dollar (USD), supported by encouraging labor market data released in the previous session for January.
The jobless rate in January increased to 2.9% YoY from the previous reading of 2.6%, surpassing expectations of a 2.8% rise. Despite the uptick, the labor market remains relatively tight. When adjusted seasonally, the rate stood at 2.8% in January. Looking ahead, the Bank of Mexico (Banxico) is scheduled to release January’s Fiscal Balance on Saturday. Banxico has revised its economic growth projection for 2024 to 2.8%, maintaining a projection of 1.5% for 2025.
Deputy Governors Jonathan Heath and Omar Mejia have advocated for a gradual approach to rate adjustments, emphasizing the importance of maintaining higher rates over an extended period. Deputy Governor Irene Espinosa has underscored the need for Banxico to consider both external and internal factors impacting inflation when making policy decisions.
The US Dollar Index (DXY) hovers around 104.10, benefiting from improved US Treasury bond yields. At the time of publication, the yields stand at 4.63% for the 2-year and 4.25% for the 10-year bonds. Recent data, including Gross Domestic Product (GDP) figures and the US Personal Consumption Expenditures – Price Index, supports the US Dollar, leading to a delay in market expectations for the Federal Reserve’s first-rate cut.
According to the CME FedWatch Tool, the probability of rate cuts in March stands at 3.0%, while the likelihood of cuts in May and June is estimated at 23.1% and 52.2%, respectively. Investors are now eagerly anticipating the final release of the US S&P Global Manufacturing PMI for February, scheduled for Friday.
