USD/MXN struggles near 17.3000 ahead of US Jobless Claims

• USD/MXN struggles as market sentiment is cautious on Fed policy in the December meeting.
• US Retail Sales raised a red flag on inflation, justifying further interest rate tightening by the Fed.
• Banxico could maintain interest rates at 11.25% to achieve its 3.0% inflation target.

USD/MXN struggles to halt the losing streak that began on Friday, trading around 17.3000 during the early European hours on Thursday. The pair could face challenges as the Bank of Mexico (Banxico) is expected to maintain interest rates at 11.25% to achieve its 3.0% inflation target by the year 2025. The decision would be dependent on the context of Mexico's inflation, which eased at 4.26% year on year in October.

The statements from Banxico’s Governor Victoria Rodriguez Ceja on Monday, suggesting that rate cuts could be a possibility next year, were echoed by Deputy Governor Jonathan Heath on Tuesday. Despite the potential for rate cuts, Heath emphasized that the monetary policy will continue to remain restrictive.

The US Retail Sales exhibiting a modest easing at 0.1% in October, lower than the anticipated decline of 0.3%, indeed raises a cautionary flag for the Federal Reserve (Fed). The figures suggest potential threats to the progress on inflation, which could justify further tightening. The Fed's cautious stance, despite recent soft inflation data, introduces an element of uncertainty. This environment of caution and uncertainty can contribute to supporting the USD/MXN pair.

However,  the downbeat US Producer Price Index (PPI), with a decrease of 0.5% compared to the expected increase of 0.1%, and the annual PPI drop from 2.2% to 1.3%, indeed has the potential to moderate market sentiment concerning further policy tightening by the Fed.

The upcoming release of the weekly US Jobless Claims is likely to be closely monitored by market participants. The state of the US labor market is often viewed as a critical factor that can influence inflation dynamics.