Anna 
During Tuesday’s European session, the USD/MXN pair staged a recovery, pushing efforts to climb higher and reaching nearly 16.70. The US Dollar (USD) strengthened, propelled by hawkish comments from US Federal Reserve (Fed) officials.
Remarks from Fed members suggesting a delay in interest rate cuts have reinforced expectations of prolonged elevated interest rates. Atlanta Fed President Raphael Bostic’s anticipation of only one rate cut this year reflects a cautious approach against premature reductions that could disrupt the market. Conversely, Chicago Fed President Austan Goolsbee emphasized the need for further evidence of declining inflation before advocating for rate adjustments.
Despite a risk-on sentiment, which typically applies downward pressure on the USD/MXN pair, the Mexican Peso (MXN) demonstrated strength. This occurred despite the recent interest rate cut by the Bank of Mexico (Banxico). Banxico Governor Victoria Rodriguez Ceja clarified that the initial rate reduction doesn’t signal the end of the battle against inflation. She underscored the central bank’s cautious stance, indicating that adjustments to the main reference rates would be gradual and data-dependent.
The decision to lower interest rates by Banxico was prompted by significant declines in both inflation and growth over the past year. Although the SNB projects inflation to average 1.9% in 2024, the current inflation rate remains notably lower at 1.2%. However, there was a notable increase in the Consumer Price Index (CPI) in February, rising by 0.6% compared to the previous month’s 0.2% increase.
