USD/MXN drops to near 16.93 after recent gains, awaits Mexico Fiscal Balance, Chicago PMI

• USD/MXN retraces its recent gains as US Dollar fails to continue gaining.
• Mexico's Jobless Rate remained consistent at 2.7% against the expected 2.6% in November.
• The downbeat US data pushed the market bias toward the dovish Fed’s outlook in early 2024.

USD/MXN retraces its recent gains as subdued US Treasury yields contribute pressure to undermining the US Dollar (USD). The USD/MXN pair trades lower around 16.93 during the European session on Friday. However, Mexico’s Jobless data might have weighed on the Mexican Peso (MXN).

In November, the Jobless Rate held steady at 2.7%, slightly below the market expectation of 2.6%. However, the seasonally adjusted Jobless Rate saw a slight increase to 2.8% from the previous 2.6%. This shift is indicative of the impact of the higher policy rates maintained by the Bank of Mexico (Banxico). Additionally, the release of the Fiscal Balance for November is eagerly anticipated and scheduled for Saturday, providing further insights into the economic landscape and fiscal health.

Traders are putting their bets on the expectation of the Federal Reserve's (Fed) cutting interest rates in the first quarter of 2024, which exerts downward pressure on the USD/MXN pair. The US Dollar Index (DXY) moves sideways near 101.20, as both the 2-year and 10-year yields on US bond notes stand at 4.27% and 3.85%, respectively, by the press time.

The rise in US Initial Jobless Claims to 218K for the week ending December 23, surpassing the expected 210K, and the flat growth of 0.0% in Pending Home Sales (MoM) for November, falling short of the anticipated 1.0%, contributed to support the market bias toward the Fed's dovish stance in upcoming policy meetings. This lesser-than-optimistic economic data from the United States (US) might have added downward pressure to weakening the USD/MXN pair.

The upcoming release of the Chicago Purchasing Managers' Index (PMI) for December, scheduled for Friday, is anticipated to show a reading of 51, which is lower than the previous figure of 55.8.