USD/MXN Declines Despite Strengthening US Dollar, Trades Around 17.13

USD/MXN experiences a downward trend driven by a stronger US Dollar, marking its second consecutive day of losses ahead of the US Federal Reserve’s (Fed) interest rate decision. While the FOMC is expected to maintain interest rates at 5.5%, there is a 43% chance, as per the CME’s FedWatch Tool, that the Fed might implement the first rate cut in March. The USD/MXN pair hovers near 17.13 during the European session on Wednesday.

The US Dollar Index (DXY) sees appreciation despite lower US Treasury yields, maintaining a level around 103.50. Recent positive economic indicators, including the US JOLTS Job Openings for December surpassing expectations, contribute to the US Dollar’s positive momentum. Investors await key data such as the US ADP Employment Change and the subsequent Nonfarm Payrolls report for a comprehensive view of the US job market.

Meanwhile, the Mexican Peso (MXN) gains ground following INEGI’s GDP data, revealing a 0.1% expansion in the fourth quarter of 2023 on a quarter-on-quarter basis. Despite falling short of forecasts and a decline from the third quarter’s 1.1% expansion, the MXN seems to respond positively. Additionally, Mexico’s first-half-month inflation data signals a resurgence, and the Jobless Rate shows a contraction in unemployed workers. Speculation arises that these economic indicators might deter the Bank of Mexico (Banxico) from considering an interest rate reduction in its February meeting.

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