USD/MXN stabilizes above 17.00 on firm US Dollar ahead of PMIs

• USD/MXN shifts comfortably above $17.00 as the US Dollar remains resilient.
• The appeal for risk-sensitive currencies remains weak due to the upside risks of a global slowdown.
• Investors await the interest rate decision from the Banxico, which will be announced next week.

The USD/MXN pair has shifted its auction above the crucial resistance of 17.00 on Friday. The asset strengthens as the US Dollar remains firm despite the Federal Reserve (Fed) announcing an unchanged interest rate decision on Wednesday as anticipated by market participants.

S&P500 futures added some gains in the European session, portraying an ease in the risk-off market mood. The broader trend is still opposing the appeal for risk-sensitive currencies due to the upside risks of a global slowdown.

The US Dollar Index (DXY) remains directionless near a six-month high around 105.70 amid uncertainty over the interest rate peak.  Fed policymakers delivered a hawkish interest rate outlook at the Federal Open Market Committee (FOMC) meeting, hinting at one more interest rate increase of 25 basis points (bps), which will push interest rates to 5.50%-5.75%.

Meanwhile, investors will focus on the release of the preliminary S&P Global PMIs for September, which will be released at 13:15 GMT. The Manufacturing PMI is expected to improve marginally to 48.0 from the August reading of 47.9. The Services PMI, which tracks a sector that accounts for two-thirds of the US economy, is anticipated to rise to 50.6 from 50.5 in August.

On the Mexican Peso, investors focus on the interest rate decision from the Bank of Mexico (Banxico), which will be announced next week. The Mexico central bank has maintained interest rates unchanged at 11.25% in the past three monetary policies.

Economists at Société Générale cited strong growth outperformance and progress on inflation containment have helped MXN to eclipse the EM currency complex this year. However, headwinds are accumulating from currently rich valuations, shifts in the Developed Markets rates paradigm, and changes to domestic policies regarding currency intervention.