Anna 
In Monday’s early European session, the USD/MXN pair extends its losses for the third consecutive session, approaching the 17.00 level. The US Dollar (USD) remains in negative territory, influenced by recent losses recorded on Friday. Despite improved US Treasury yields, with 2-year and 10-year yields at 4.55% and 4.20%, respectively, the US Dollar Index (DXY) faces downward pressure, currently near 103.80. Atlanta Fed President Raphael W. Bostic’s expectations of potential interest rate deductions no earlier than the end of 2024 support the USD, alleviating concerns of imminent rate cuts.
According to the CME FedWatch Tool, the chances of a rate cut in March stand at 5.0%, while probabilities for cuts in May and June are estimated at 26.8% and 53.8%, respectively. Investors eagerly await Federal Reserve Chair Jerome Powell’s speeches on Wednesday and Thursday for further insights into the central bank’s monetary policy stance, along with employment data later in the week.
On the other side, the Bank of Mexico’s (Banxico) Fiscal Balance in pesos reveals a deficit of 159.14 billion in January, compared to the previous negative balance of 291.23 billion in December 2023. The Mexican Peso (MXN) gains momentum against the USD, bolstered by labor market data released for January last week. Despite a rise in the jobless rate to 2.9% year-over-year from 2.6% prior, exceeding expectations of a 2.8% increase, the relatively tight labor market supports the MXN.
Anticipation for Banxico to implement monetary policy easing in March remains significant, with investors predicting a reduction of 75 basis points over the next six months. Deputy Governors Jonathan Heath and Omar Mejia advocate for a measured approach to rate adjustments, emphasizing the importance of sustaining higher rates for an extended period. Deputy Governor Irene Espinosa underscores the need for Banxico to carefully evaluate both external and internal factors influencing inflation when making policy decisions. As market participants navigate through these factors, the USD/MXN pair remains subject to the evolving dynamics of central bank actions and economic indicators.
