Anna 
During the European session on Wednesday, the USD/MXN pair continued its upward trajectory, reaching approximately 16.99, propelled by prevailing risk aversion in the market. The heightened cautiousness among investors has provided a supportive backdrop for the USD/MXN exchange rate. Nevertheless, the burgeoning trend in Mexico’s consumer inflation rate looms as a potential catalyst for the Bank of Mexico (Banxico) to consider measured easing of monetary policy in the near future, offering a prospective boost for the Mexican Peso (MXN).
In December, Mexico’s 12-month inflation rate climbed to 4.66%, marking an increase from the previous 4.32%. Contrary to expectations of a 0.61% contraction, the headline inflation rose to 0.71%, with core inflation slightly below expectations at 0.44%, against the anticipated 0.50%. Attention now turns to Thursday’s industrial output data in Mexico, where a slowdown is anticipated, adding further intrigue to the market.
The U.S. dollar index (DXY) maintained stability near 102.50, following recent gains, as it aims to extend profits amidst uncertainty surrounding U.S. Treasury yields. Presently, the 2-year and 10-year U.S. bond coupon yields stand at 4.34% and 4.0%, respectively. The dollar’s support may persist if the prevailing risk-off sentiment continues to abate, particularly with the awaited release of U.S. Consumer Price Index (CPI) data for December on Thursday.
Investors are on the lookout for signals from the Federal Reserve regarding the trajectory of interest rates. Despite potential impacts on aggregate demand and concerns about sluggish growth and a weakened labor market, no rate cuts are anticipated at the upcoming January policy meeting, according to expectations.
