Ella 
USD/MXN has erased losses from the previous session and is trading around 18.70 during early European trade on Thursday. A pullback in U.S. Treasury yields provided support for the U.S. dollar (USD) and USD/Mexico.
However, upside potential for USD/MXN may be limited due to dovish sentiment surrounding the trajectory of Federal Reserve (Fed) policy. The Federal Reserve decided to keep interest rates unchanged at the 5.25%-5.50% range at its July meeting on Wednesday.
The U.S. Dollar Index (DXY), which measures the value of the U.S. dollar (USD) against six other major currencies, is trading near 104.10. At press time, the 2-year and 10-year U.S. Treasury yields were 4.28% and 4.05%, respectively.
At the press conference after the interest rate decision, Federal Reserve Chairman Jerome Powell said that a rate cut in September was “possible” and that the Federal Open Market Committee (FOMC) did not want to make any commitments in the statement. Powell also said the central bank will keep a close eye on the labor market and remain alert for signs of a potential sharp decline.
The Mexican peso (MXN) weakened as concerns about a slowdown in Mexico’s economy fueled speculation about a more dovish stance from the Bank of Mexico (Banxico). Recent data showed Mexico’s gross domestic product (GDP) grew just 0.2% in the second quarter ended in June, down from 0.3% growth in the previous quarter.
Additionally, the fiscal balance recorded a P166.74 billion deficit in June, down from the previous P174.89 billion deficit.
Traders expect upcoming U.S. economic data to further guide the market, including the ISM Manufacturing Purchasing Managers’ Index and weekly jobless claims, both due later on Thursday. Meanwhile, Mexico’s unemployment rate data will be released on Friday.
