USD/MXN extends its losses near 17.1000 due to risk-on sentiment

• USD/MXN faces challenges on improved risk appetite.
• Mexico’s mid-November inflation is expected to rise slightly.
• Downbeat US bond yields contribute to pressure on the US Dollar.

USD/MXN extends its losses for the second consecutive day, hovering around 17.1000 during the European session on Tuesday. The pair faces downward pressure fueled by risk-on sentiment, contributing to the overall weakness of the US Dollar (USD). The prevailing market consensus suggests that the Federal Reserve (Fed) has wrapped up its policy-tightening measures. Moreover, sentiment in the market is increasingly favoring the possibility of rate cuts by the Fed, expected to commence in March 2024.

The downbeat Consumer Price Index (CPI) in the United States (US) for October has led investors to reassess the likelihood of a Federal Reserve (Fed) rate hike at the December meeting and consider the potential for rate cuts in 2024.

US Dollar weakness persists on weaker US Treasury bond yields, with 10-year US Treasury yield and 2-year US bond yield stand at 4.39% and 4.90%, respectively.

According to the latest report from the US Bureau of Labor Statistics, the US CPI decelerated to 3.2% (YoY), falling below the consensus of 3.3% and down from the previous reading of 3.7%. The Core CPI eased to 4.0% (YoY), slightly below the previous figure of 4.1%, which was expected to remain unchanged.

FOMC meeting minutes are scheduled to be released on Tuesday, which could provide insights into the decision-making process of the Federal Reserve (Fed) committee regarding interest rates.

Mexico’s economic docket for Thursday will highlight the release of 1st half-month Inflation for November. The expectation is for a slight increase in the Mexico CPI and a marginal reduction in core CPI.

Additionally, the Bank of Mexico (Banxico) is set to release its latest meeting minutes, where the decision to maintain rates at current levels was accompanied by a shift in language from "for an extended period" to "for some time." The swap market indicates pricing in 50 basis points of cuts in the first half of 2024.