During Thursday’s European session, USD/MXN made an attempt to recover from recent losses, maintaining a stable position near 16.91. The currency pair faces headwinds primarily stemming from a weakened US dollar, a condition believed to be influenced by the potential of an interest rate cut by the Federal Reserve (Fed) in the first quarter of 2024.
Market sentiment, as reflected in the CME Fedwatch tool, indicates a high probability, exceeding 88%, of an interest rate cut by the Federal Reserve in March, with a fully priced-in rate cut also anticipated in May. This data underscores the widespread expectation among investors that the Federal Reserve might adopt a more accommodative monetary policy.
Compounding the pressure on the dollar are declining U.S. Treasury bond yields. Despite attempts to stabilize, the 2-year and 10-year U.S. Treasury yields currently stand at 4.26% and 3.81%, respectively.
Last week’s disappointing core U.S. PCE price index has contributed to the belief that the Federal Reserve may contemplate policy adjustments to address economic conditions. This index holds significance in the Fed’s evaluation of inflation trends and overall economic health.
Investor focus is keenly set on Thursday’s data releases, providing insights into the labor market and housing sector. Forecasts suggest that U.S. initial jobless claims for the week ending December 22 may surpass the previous reading of 205,000, reaching 210,000. Simultaneously, there is anticipation for a recovery in existing home sales growth, rising by 1.0% following a 1.5% decline in the previous reading.
In Mexico, the National Institute of Statistics and Geography (INEGI) is slated to release the unemployment rate for November on Thursday. Market expectations project a slight decrease to 2.6% from the previous 2.7%. Additionally, the fiscal balance sheet for November is scheduled for release on Saturday, adding to the economic indicators shaping market sentiment.
