USD/MXN attempts to recover recent losses, trades higher around 18.2500

• USD/MXN faced a challenge due to risk-off sentiment.
• Israel-Hamas war could weigh on the Mexican Peso.
• Mexico's Retail Sales declined to 0.4% (MoM) in August, while the annual data grew at 3.2%.
• Greenback receives upward support on improved US Treasury yields.

USD/MXN aims to recover recent losses, trading around 18.2500 during the Asian session on Monday. The pair gained ground due to increased risk aversion stemming from the Israel-Hamas military situation.

The mixed remarks from US Federal Reserve (Fed) officials regarding the interest rates trajectory could put pressure on the USD/MXN pair. Atlanta Fed President Raphael Bostic suggested that the Federal Reserve is unlikely to lower interest rates before the middle of next year, and Fed Philadelphia President Patrick Harker expressed a preference for maintaining unchanged interest rates.

Furthermore, Federal Reserve (Fed) Chairman Jerome Powell clarified in the previous week that the central bank is not planning an immediate rate hike, emphasizing the potential for further tightening of monetary policy in response to signs of growth.

The US Dollar Index (DXY) trades higher around 106.30 at the time of writing. This upward movement is supported by the positive momentum in US Treasury yields, the 10-year US Treasury yield standing at 4.96%, up by 0.96% by the press time.

In the week ending October 14, US weekly Initial Jobless Claims dropped to 198K, coming in below market expectations of 212K. This marks the lowest level since January, indicating a positive trend in the job market.

However, Existing Home Sales Change showed a decline of 2.0% month-on-month in September, while Existing Home Sales improved to 3.96M units.

The US Unemployment Rate improved to 3.6% in September, surpassing the expected consistency at 3.7%. These data points provide insights into the current state of the US labor market and housing sector.

Moreover, downbeat retail sales in Mexico could contribute to undermining the Mexican Peso (MXN). Mexico's Retail Sales experienced a sharp decline of 0.4% month-on-month in August, falling short of the anticipated 0%. The annual growth of 3.2%, was below the of 4.4% forecasted and lagged behind the 5.1% recorded in July.

During the previous week, Deputy Governor Omar Mejia of the Bank of Mexico (Banxico) reiterated that the balance of inflation risks has not deteriorated. Mejia emphasized that the current restrictive monetary policy is effectively managing inflation, and he anticipates it to align with Banxico's target by the second quarter of 2025.

Investors are likely to monitor the US S&P Global PMI on Tuesday and the Q3 Gross Domestic Product (GDP) on Thursday. Additionally, Mexico’s Trade Balance data is set to be released on Friday. These key indicators have the potential to significantly impact market sentiment and provide valuable insights into the broader economic landscapes of both the United States and Mexico.