USD/MXN trades lower around 16.80, focus on US economic data

• USD/MXN trades lower due to the dovish sentiment around Fed policy.
• US treasury yields recover from recent losses, supporting the US Dollar (USD).
• Investors anticipate less probability of interest rate hikes by the Fed.

USD/MXN snaps two-day winning streak, trading lower around 16.80 during the Asian session on Wednesday, possibly due to the dovish sentiment surrounding the monetary policy decision by the US Federal Reserve (Fed), which could be attributed to the United States (US) downbeat economic data on Tuesday.

US Consumer Confidence declined to 106.1 in August from 114.0 prior, compared to the expected 116.0. US JOLTS Job Openings reduced to 8.827 million in July against the previous 9.165 million. This contrasted with the expected rise to 9.465 million.

However, the USD/MXN pair experienced strength due to Mexico’s downbeat Gross Domestic Product (GDP) (YoY) for the second quarter on Tuesday. The report printed 3.6%, falling short of the expected to remain consistent at 3.7%. While, GDP (QoQ) declined to 0.8% from the previous 1.0%, against expectations of 0.9%.

The US Dollar Index (DXY), which measures the performance of the US Dollar (USD) against the six other major currencies, trades higher around 103.60. This upward movement could be attributed to the recovery in US Treasury yields after a decline of 2.77% in the previous two days. Currently, the yield on 10-year US trades at 4.14% by the press time.

According to the CME's FedWatch Tool, the current market assessment suggests an 11.5% probability of a rate hike in the upcoming meeting by the Federal Reserve. Investors project that the Fed is more inclined to postpone any rate increases until its meeting in September. This prevailing sentiment is contributing to a weakening of the safe-haven Greenback.

Investors will closely monitor the forthcoming US economic data to gain a more lucid understanding of the economic trajectory of the United States (US). This focus is spurred by Fed Chairman Jerome Powell’s remarks at the Jackson Hole Symposium, indicating that any future interest rate hikes will be determined based on data-driven analysis.

Wednesday’s top-tier macroeconomic docket includes the US ADP Employment Change for August and the preliminary Gross Domestic Product Annualized for the second quarter (Q2). These datasets will help in shaping strategies before making fresh bets on the USD/MXN pair.