Anna 
The USD/MXN pair broke its losing streak that began on February 29, driven by the resurgence of the US Dollar (USD). As the pair climbed to approximately 16.70 during Thursday’s European session, traders eagerly awaited the release of the US Core Producer Price Index (PPI) and Retail Sales data later in the day.
The US Dollar Index (DXY) appreciated to nearly 102.90, with 2-year and 10-year yields on US Treasury bonds standing at 4.64% and 4.20%, respectively, at press time. The optimistic US Consumer Price Index (CPI) has tempered expectations for immediate interest rate cuts by the Federal Reserve (Fed). Nevertheless, market participants continue to anticipate rate reductions in June, with a probability of 67.2%, as reported by the CME FedWatch Tool.
Meanwhile, the Mexican peso has experienced upward momentum, reaching its highest level since November 2015. This trend can be attributed to the hawkish sentiment surrounding the Bank of Mexico (Banxico), which is inclined to maintain its restrictive monetary policy. Banxico’s policymakers have acknowledged the progress in controlling inflation in their quarterly report.
However, Banxico officials have stressed the importance of avoiding premature interest rate cuts. Governor Victoria Rodriguez Ceja advocates for a gradual approach to adjustments, while Deputy Governor Jonathan Heath has cautioned against the risks associated with premature rate cuts.
In January, Mexico’s Industrial Output (YoY) witnessed a significant surge, contrasting with the previous flat reading. Additionally, there was an anticipated monthly increase, reversing the previous decline. Despite the annual inflation rate decreasing from a seven-month high in January, Core Inflation experienced a higher increase compared to the previous reading. The upcoming policy meeting of the Bank of Mexico (Banxico), scheduled for March 21, is expected to provide insights into the central bank’s approach towards monetary policy stance.
