USD/MXN retraces its recent gains on improved mood, trades lower near 16.92

• USD/MXN loses ground amid Greenback improvement.
• The recent downbeat Mexican data weakened the MXN.
• The speculation of the Fed’s rate cuts strengthens as the US economy is slowing.

USD/MXN loses ground after two days of profits, trading lower near 16.92 during the European hours on Tuesday. The Mexican Peso (MXN) recovers its recent losses against the US Dollar (USD) on improved risk sentiment.

Mexico's Fiscal Balance in Pesos (Nov) revealed a deficit of 87.78 billion, significantly higher than the 29.58 billion recorded in October. Additionally, the Jobless Rate remained stable at 2.7%, slightly below the market expectation of 2.6%. However, the seasonally adjusted Jobless Rate experienced a minor uptick, rising to 2.8% from the previous 2.6%. These data figures may offer some relief to the Bank of Mexico (Banxico) regarding the need for further tightening of monetary policy. However, the potential easing could exert pressure on the Mexican Peso (MXN).

The US Dollar (USD) receives upward support at the beginning of the year, with the US Dollar Index (DXY) edging near 101.50. The signs of a slowing US economy in the last quarter of 2023, reflected in the decline of US labor data, Core PCE Inflation, and GDP Annualized, strengthen the case for potential Federal Reserve (Fed) rate cuts in early 2024. This anticipation exerts negative pressure on the USD, contributing to the downward trend and undermining the strength of the USD/MXN pair.

Additionally, the Chicago Purchasing Managers Index released by ISM-Chicago on Friday indicated a significant reduction in business conditions in the Chicago region, dropping to 46.9 in December from the previous 55.8. This surpassed the market expectation of a decline to 51.0. Looking ahead, investors will be closely watching for ISM Manufacturing PMI figures and the Meeting Minutes from the Federal Open Market Committee (FOMC) scheduled for release on Wednesday, as these events can have notable impacts on market sentiment and expectations.