USD/MXN consolidates around 17.1350 on investors caution ahead of US Fed decision

• USD/MXN trades sideways as the investors turn cautious ahead of the Fed decision.
• US Dollar (USD) could experience upward support on the likelihood of a 25 basis points interest rate hike by the Fed in November or December meetings.
• Investors await Mexico’s Retail Sales and Inflation data, seeking clues on the future interest rate trajectory.

USD/MXN moves sideways around 17.1350 during the Asian session on Tuesday, as it attempts to continue the downward trend from the previous day's gains. However, investors caution ahead of the US Federal Reserve’s (Fed) policy decision to put pressure on the Mexican Peso (MXN).

US Dollar (USD) is under pressure as the Fed is expected to keep its current interest rates in the upcoming meeting scheduled for Wednesday. However, investors are cautious due to the possibility of a 25 basis points interest rate hike by the end of 2023, which is supported by resilient economic data from the United States (US).

Traders are also factoring in the possibility that the Fed may keep interest rates elevated for an extended period, which could provide support for the Greenback. They will closely monitor the central bank's statements for any indications or information regarding the potential future trajectory of interest rates.

US Dollar Index (DXY) is making an effort to break its two-day losing streak, trading higher around 105.10. However, US Treasury yields are struggling to recover from the losses observed on Monday, with the yield on the US 10-year bond at 4.30% at the time of writing. The lower yields are putting downward pressure on the strength of the Greenback.

On the other side, the Mexican currency has been affected by increased risk aversion, partly due to the recovery in oil prices. This has raised concerns that central banks may keep their restrictive monetary policies in place for a longer period or even consider tightening them further.

Furthermore, macro data released on Monday showed that Mexico’s Private Spending (YoY) grew by 4.3% in Q2, below the previous reading of 4.8%. While quarter-over-quarter results showed growth of 1.0%, lower than the previous rate of 2.2%.

The focus will be on Thursday’s release of Retail Sales for July and Friday's release of inflation data for the first half of September, as it could provide new clues about the future direction of the Bank of Mexico's interest rates.