Anna 
The USD/MXN pair continued its upward trajectory, nearing 16.90 and notching gains for the fourth consecutive session on Tuesday. Traders are keeping a close eye on upcoming economic data releases from Mexico, including Private Spending figures on Tuesday and Retail Sales data on Wednesday. Additionally, market attention is focused on the Bank of Mexico’s (Banxico) interest rate decision scheduled for Friday, with expectations leaning towards a 25 basis points reduction.
In Banxico’s quarterly report, officials acknowledged progress in inflation control but emphasized the importance of avoiding premature interest rate cuts. However, there appears to be a division within Banxico’s Governing Council, with Governor Victoria Rodriguez Ceja, Omar Mejia Castelazo, and Galia Borja Gomez adopting a dovish stance, while Jonathan Heath and Irene Espinosa Cantellano lean towards a more hawkish outlook.
A potential economic slowdown in Mexico remains a key factor that could prompt Banxico’s first rate cut, as the central bank has revised its economic projections downward. Despite Mexico’s Industrial Production showing a surge over the past twelve months, exceeding December’s stagnant performance, this may further bolster the hawkish stance of Banxico.
Meanwhile, the US Dollar (USD) has strengthened to nearly 103.90, supported by improved US Treasury yields, with 2-year and 10-year US bond coupons reaching 4.73% and 4.32%, respectively. Investors are eagerly anticipating the interest rate decision from the US Federal Reserve (Fed), expected to be announced on Wednesday. The Fed is anticipated to maintain its elevated interest rates in response to recent inflationary pressures.
