USD/MXN struggles to surpass 19.00, upside seems favored amid hawkish Fed commentary

• USD/MXN is oscillating in a narrow range below the critical resistance of 19.00.
• The market mood is quite confusing as the S&P500 futures and US Treasury yields are showing a recovery.
• The Fed might announce two more 25 bps interest rate hikes before pausing the policy tightening program.

The USD/MXN pair is showing a balanced auction below the round-level resistance of 19.00 in the early European session. The asset is expected to surpass the immediate resistance as Federal Reserve (Fed) policymakers are continuously passing hawkish commentaries for the terminal rate and sustenance of higher interest rates to tame the stubborn inflation.

Market mood is quite confusing as the S&P500 futures are showing a recovery move after a three-day losing spell and also the 10-year US Treasury yields have extended their recovery above 3.41%. The US Dollar Index (DXY) has climbed to near 101.80 after a rebound to near 101.60. Thanks to the hawkish commentary from Fed policymakers, which are acting as a cushion for the US Dollar.

New York Fed Bank President John Williams cited that “With inflation still high and indications of continued supply-demand imbalances, it is clear that monetary policy still has more work to do to bring inflation down to our 2% goal on a sustained basis”, as reported by Reuters.

Although signs of inflation softening are present, more policy tightening is still needed to contain roaring inflation. Meanwhile, Reuters claims that Fed chair Jerome Powell will pause the policy tightening program for the rest of CY2023 after hiking interest rates by 25 basis points (bps) in the next two monetary policy meetings.

Meanwhile, Mexican Peso investors are likely to keep an eye on the interest rate decision by the Banco de México, which is scheduled in February. Analysts at Rabobank, expect the terminal rate at 10.75% after a final 25 basis points (bps) hike in February.