USD/MXN probes three-day downtrend near weekly low as traders await US inflation

• USD/MXN picks up bids to snap three-day downtrend around the lowest levels in eight days.
• Hawkish Fed speak, hopes of positive surprise from US CPI weigh on market sentiment and test US Dollar bears.
• Fresh fears surrounding China, cautious mood ahead of multiple catalysts from elsewhere also challenge Mexican Peso pair bears.

USD/MXN licks its wounds near 18.60 as it bounces off the weekly low during early Tuesday, teasing the first positive performance in four. It’s worth noting, however, that the Mexican Peso (MXN) pair remains near the multi-month low of 18.50 marked in February.

That said, the pair’s latest rebound could be linked to the US Dollar’s U-turn from the intraday low as market players rush for risk safety ahead of the key US Consumer Price Index (CPI) for January. Adding strength to the rebound are the hawkish statements from the Federal Reserve (Fed) officials and China concerns, not to forget anxiety ahead of the employment and growth numbers from the Eurozone and the UK.

While portraying the mood, the S&P 500 Futures print mild losses around 4,140, following the biggest daily jump of the month. That said, the US 10-year Treasury bond yields drop nearly two basis points to 3.69% at the latest, after reversing from a one-month high the previous day. It should be noted that the US Dollar Index (DXY) remains pressured while equities in the Asia-Pacific region trade mixed at the latest.

On Monday, Fed Governor Michelle Bowman said that the Federal Reserve will need to continue to raise interest rates in order to get them to a level high enough to bring inflation back down to the central bank's target rate, per Reuters. On the same line, Philadelphia Federal Reserve President Patrick Harker pushed back the chatters of a Fed rate cut during 2023 while crossing wires in the weekend. However, the policymaker did mention, “Fed not likely to cut this year but may be able to in 2024 if inflation starts ebbing," per Reuters.

The hawkish Fed talks join the fresh Sino-American tension over the spying attempts via the balloons to weigh on sentiment and put a floor under the USD/MXN prices. “US Congress will take a bipartisan look at unidentified aerial objects that have made their way into U.S. and Canadian airspace, and why they were not found sooner,” said US Senate Majority Leader Chuck Schumer. It’s worth noting that a US Military General previously ruled out odds favoring the likely hand of China in the “unidentified objects” which were shot down during the weekend.

Apart from what was mentioned above, the absence of the Mexican data also allows the USD/MXN pair to pare the Banxico-inflicted wounds.

It should be observed that the last week’s surprise 0.50% rate hike from Banxico has been pleasing the USD/MXN as traders await the US CPI, expected 6.2% YoY versus 6.5%.

Also read: US Consumer Price Index Preview: US Dollar vulnerable to violent crash, every 0.1% in Core CPI matters

Technical analysis

Unless crossing a one-week-old descending resistance line, around 18.70 by the press time, USD/MXN remains vulnerable to refreshing the yearly low of 18.50, marked earlier in February.