- USD/MXN strengthens on risk-off sentiment after upbeat US inflation data.
- The US Dollar remains firmer despite the correction in the US Treasury yields.
- Banxico Deputy Governor Omar Mejia suggested the potential for an interest rate cut.
USD/MXN expands gains for the second consecutive day on Friday, bouncing back from the eight-month low at 16.64 reached on Thursday. At the time of writing, the USD/MXN pair attempts to extend its gains, trading around 16.70 during the European trading hours.
The upbeat US Core Producer Price Index (PPI) data for February, with a 2.0% year-over-year increase, exceeding expectations of 1.9%, has strengthened the US Dollar. This in turn supports the USD/MXN pair.
The recent economic indicators pose challenges for the Federal Reserve's decision-making process regarding interest rate cuts. Traders are eagerly awaiting the preliminary US Michigan Consumer Sentiment Index for March on Friday to gain insights into the Federal Reserve’s policy trajectory.
Officials from the Bank of Mexico (Banxico) have underscored the importance of avoiding premature interest rate cuts. Governor Victoria Rodriguez Ceja has advocated for a gradual approach to adjustments, while Deputy Governor Jonathan Heath has warned against the risks associated with premature rate cuts.
However, Banxico Deputy Governor Omar Mejia hinted at the possibility of an interest rate cut in a podcast on Wednesday, arguing that it wouldn't be premature given the high level of rates maintained by the bank. The market is pricing in expectations that Banxico could cut rates as soon as the March 21 meeting.
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