USD/MXN edges lower near 17.01 on dovish Fed outlook, US Data awaited

• USD/MXN extends losses as the Greenback weakens on speculation of Fed to ease policy tightening.
• The softer US bond yields contributed to downward pressure on the US Dollar.
• US GDP Annualized eased at 4.9% in Q3, while the Philadelphia Fed Manufacturing Survey declined by 10.5 in December.
• Mexico's 1st half-month Inflation rose by 0.52%, while Core Inflation eased to 0.46% in December.

USD/MXN continues to move on a downward trajectory on enhanced risk sentiment, which could be attributed to the speculation of the Federal Reserve (US) to ease monetary policy tightening in early 2024. The USD/MXN trades lower around 17.01 during the European session on Friday.

The downbeat US Treasury yields contribute to the weakening of the US Dollar (USD), with 2-year and 10-year yields on US bond coupons standing at 4.34% and 3.87%, respectively, by the press time. The US Dollar Index (DXY) extends its losses for a second consecutive day, bidding around 101.70.

Additionally, the recent release of mixed economic data from the United States (US) on Thursday has strengthened expectations for the Federal Reserve (Fed) to adopt a more accommodative monetary policy in the first quarter of 2024. US Gross Domestic Product Annualized (GDP) eased at a rate of 4.9% in Q3. Philadelphia Fed Manufacturing Survey declined by 10.5 in December, against the expected decline of 3.0. However, Initial Jobless Claims for the week ending on December 15 were 205K, below the expected 215K.

On Mexico’s side, on Thursday, 1st half-month Inflation for December rose by 0.52%, exceeding the expected 0.40%. While Core Inflation for the same period grew by 0.46%, slightly below the market consensus of 0.48%.

Recent Retail Sales data from Mexico, released on Wednesday, indicates positive momentum. Despite the dovish comments from Bank of Mexico (Banxico) Governor Victoria Rodriguez Ceja, the resilience of the Mexican Peso (MXN) remains unaffected.

Market participants are poised to closely monitor a series of economic data releases scheduled from the United States, particularly the Core Personal Consumption Expenditures - Price Index data. Expectations are leaning towards softer numbers. On Mexico’s docket, Trade Balance data will be eyed on Friday.