USD/MXN builds cushion around 17.60 as USD Index extends sharply, Banxico policy in focus

• USD/MXN has shifted its auction comfortable above 17.60 amid a recovery in the USD Index.
• A failure in the raise of US debt-ceiling could provide catastrophic effects on the US economy.
• Banxico is expected to keep the interest rate policy unchanged.

The USD/MXN pair has built a cushion around 17.60 as the US Dollar Index (DXY) has extended its upside further to near 102.96 in the early European session. The asset is expected to remain on the tenterhooks as investors are awaiting the announcement of the interest rate decision by the Bank of Mexico (Banxico).

A solid recovery of losses generated in Asia by the S&P500 futures is indicating further strengthening of the risk appetite of the market participants. The US Dollar Index (DXY) has recovered sharply and is looking to recapture the immediate resistance of 103.00. It seems that investors have ignored positive commentaries from US President Joe Biden and Republican Speaker Joseph McCarthy.

Republican House of Representatives McCarthy said that each member who attended negotiations associated with raising the US debt-ceiling limit cited the approval of a higher US borrowing cap and widening budget deficit as a disaster.

Investors should note that there is no alternative to approving the raise in the US debt-ceiling limit as a failure in the same could provide catastrophic effects for the United States economy. The US economy will be out of funds by June 01 and it would lead to the loss of millions of jobs and a sharp decline in Gross Domestic Product (GDP) numbers.

On the Mexican Peso front, investors are awaiting the release of the interest rate policy by Banxico. The majority of analysts surveyed by Bloomberg and Reuters expect a pause in the rate-hiking spell. This could put some pressure on the Peso, as a minority still seems to expect another rate hike.” Investors should note that Banxico’s current interest rates are at 11.25%.