USD/MXN steadies near multi-month low of 17.95 as Mexican Inflation, Fed’s Powell and US NFP loom

• USD/MXN licks its wound near the lowest levels since April 2018.
• Mexican Peso marked the biggest weekly gains in seven months amid broad US Dollar declines.
• Key data/events eyed for clear directions, Fed Chair Powell needs to defend hawkish bias to avoid further USD fall.

USD/MXN prints mild gains around 17.98 as it pares the biggest weekly loss in seven months during early Monday in Europe. In doing so, the Mexican Peso (MXN) pair tracks the market’s consolidation mode ahead of the top-tier data events.

Even so, the US Dollar’s failure to regain the upside momentum, mainly due to the downbeat Treasury bond yields, joins the fresh concerns suggesting a monetary policy divergence between the US Federal Reserve (Fed) and Banxico to probe the USD/MXN buyers.

The recently mixed concerns surrounding China and the weakness in Oil prices could be linked to the USD/MXN pair’s latest rebound. That said, the National Development and Reform Commission of the People's Republic of China (NDRC) recently said, it “Will further release the potential for consumption,” while also adding that China's economy steadily improving, per Reuters. Earlier in the day, market sentiment turned sour after China’s annual session of the National People's Congress (NPC) appeared a grim event due to its growth target and geopolitical concerns.

Elsewhere, the Fed policymakers’ indecision and mixed US data contrast with Banxico’s hawkish bias to keep the USD/MXN bears hopeful. During the weekend, San Francisco Federal Reserve Bank President Mary Daly highlighted the importance of incoming data to determine how high the rates can go. Previously, Atlanta Fed President Raphael Bostic renewed concerns about the Fed’s policy pivot while Federal Reserve published a semi-annual Monetary Policy Report on Friday wherein it clearly said, “Ongoing increases in the Fed funds rate target are necessary.” The report also stated that the Fed is strongly committed to getting inflation back to 2%.

Talking about the data, softer prints of the latest US Consumer Confidence, ISM PMI and Durable Goods Orders seem to challenge the US Dollar bulls. Alternatively, Mexico’s upbeat outcomes of the seasonally adjusted Trade Balance and Unemployment Rate for January seemed to have favored the USD/MXN bears.

Against this backdrop, US 10-year Treasury bond yields, rose to the highest levels since November 2022 in the last week before easing to 3.95% by the end of Friday, making rounds to the same level at the latest. More importantly, the US two-year bond coupons rose to the highest levels last seen in 2008 before retreating to 4.85% by the press time. That said, the S&P 500 Futures print mild gains, tracking Wall Street’s moves amid a light sluggish start to the key week.

Looking forward, Fed Chair Jerome Powell’s Testimony, China’s inflation data and Friday’s US jobs report for February, are likely to be the key catalysts to watch for clear directions. At home, Mexican Inflation data for February, up for publishing on Thursday, will be crucial for the guide.

Technical analysis

Although April 2018 low near 17.93 restricts immediate USD/MXN downside, the pair’s recovery moves remain unimpressive below the previous support line from late November 2022, close to 18.15 by the press time.