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USD/MXN was trading around 19.30 during early European trading on Wednesday, after breaking a four-day winning streak. The Mexican peso (MXN) is trading higher on a likely improvement in risk appetite. However, the downside for USD/MXN may be limited as Treasury yields rise and the U.S. dollar (USD) moves higher.
Mexico’s auto exports fell 1.6% year-on-year to 271,496 units in July, breaking a 20-month streak of growth. The drop highlights the economy’s ongoing slowdown, which, coupled with falling inflation data, could prompt Mexico’s Bank of Mexico to consider lower borrowing costs at an upcoming meeting. Traders are likely to watch inflation data ahead of a policy decision on Thursday.
The U.S. Dollar Index (DXY), which measures the value of the U.S. dollar against six major currencies, is currently trading around 103.20. At press time, the yields on the 2-year and 10-year U.S. Treasury notes were 4.00% and 3.90% respectively.
However, the upside for USD/MXN may be squeezed as weak US labor data for July stokes fears of an imminent US recession and the likelihood of rate cuts starting in September is relatively high.
According to Reuters, San Francisco Federal Reserve President Mary Daly said on Monday: “Risks to the Fed’s mission are becoming more balanced and it is open to the possibility of cutting interest rates at the upcoming meeting. ” Additionally, Chicago Fed President Austan Goolsbee said the central bank is ready to take action if economic or financial conditions worsen.
