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USD/MXN moves lower to 16.95 as sentiment improves on speculation of Fed rate cuts

  • USD/MXN loses ground as market sentiment improves.
  • Traders factor in the possibility of five rate cuts in 2024.
  • Banxico is expected to avoid easing policy in February’s meeting on the mixed inflation scenario.

USD/MXN halts its two-day winning streak, which could be attributed to the improved risk appetite as traders price in the possibility of five rate cuts in 2024. The US Dollar (USD) loses ground on downbeat US Treasury yields. The USD/MXN pair trades lower near 16.95 during the early European session on Thursday.

The World Bank has revised its economic projections for Mexico in 2024. The updated forecast anticipates a growth in the Gross Domestic Product (GDP) to reach 2.6%, surpassing the initially projected 1.9%. In October, Mexico's Gross Fixed Income experienced a month-on-month increase of 1.9%, rebounding from the 1.5% decline observed in September.

In December, Mexico's inflation data revealed a mixed scenario, with an increase noted in 12-month inflation and Headline inflation. However, Core inflation grew slightly lower than the market expectations. Market participants are anticipated to closely monitor Thursday's Industrial Output data, with expectations pointing toward a potential slowdown in the production activities of Mexican industries.

The US Dollar Index (DXY) extends its losses on the second successive session, hovering near 102.20 with the 2-year and 10-year yields standing lower at 4.35% and 4.00%, respectively, at the time of writing.

The Consumer Price Index (CPI) data for December in the United States is set to be unveiled later in the North American session. The monthly and yearly CPI are expected to exceed the previous figures rising by 0.2% and 3.2%, respectively. Meanwhile, the Core inflation year-over-year could ease at 3.8% and month-over-month may remain consistent at 0.3%. These economic indicators hold considerable significance in assessing inflationary pressures and have the potential to significantly shape market expectations concerning the monetary policy stance of the US Federal Reserve.

 

Inflation improvement in 2024 will allow ECB and Fed to ease – ANZ

Economists at ANZ Bank analyze Fed and ECB outlook in a year of transition.
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Pound Sterling prints a fresh weekly high ahead of US CPI, UK factory data

The Pound Sterling (GBP) has extended its upside, capitalizing on improved market sentiment and an absence of commentary hinting at interest rate cuts from any Bank of England (BoE) policymakers.
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