Anna 
The USD/MXN pair experienced a retracement of recent gains during the European session on Friday, trading lower around 16.93. The decline in the U.S. dollar (USD) was attributed to the impact of low U.S. Treasury yields, with traders closely monitoring the evolving economic landscape.
The Mexican peso (MXN) faced its own set of challenges as Mexico’s unemployment data came into focus. While the unemployment rate in November remained steady at 2.7%, slightly below market expectations of 2.6%, the seasonally adjusted unemployment rate edged up to 2.8% from the previous 2.6%. This uptick reflects the influence of the Bank of Mexico’s (Banxico) decision to maintain higher policy rates. Additionally, the release of November’s fiscal balance on Saturday is anticipated to provide further insights into Mexico’s economic situation and fiscal health.
Traders are positioning themselves based on expectations that the Federal Reserve (Fed) will implement interest rate cuts in the first quarter of 2024, applying downward pressure on USD/MXN. The U.S. dollar index (DXY) displayed sideways movement around 101.20, while the 2-year and 10-year U.S. Treasury yields stood at 4.27% and 3.85%, respectively, as of the latest update.
In the United States, the week ending December 23 witnessed an increase in the number of individuals filing for unemployment benefits, reaching 218,000, surpassing expectations set at 210,000. Additionally, November’s existing homes for sale exhibited a marginal increase of 0.0%, falling short of the anticipated 1.0%. These factors, combined with the market’s anticipation of a dovish stance from the Federal Reserve in its upcoming policy meeting, may exert further downward pressure on USD/MXN, particularly if economic data from the U.S. continues to show less optimistic trends.
The focus now shifts to the release of the Chicago Purchasing Managers Index (PMI) for December, expected to be 51, down from the previous reading of 55.8. Traders will closely monitor these developments to gauge the direction of USD/MXN in the face of evolving economic conditions and policy expectations.
