USD/MXN seems to continue its losing streak, trades lower near 16.88

• USD/MXN moves on a downward trajectory on hawkish Banxico.
• Bank of Mexico’s latest meeting minutes suggest maintaining rates at current levels for a certain period.
• US Dollar could face challenge on improved risk appetite after mixed US data.

USD/MXN hovers around 16.88 during the European session on Monday. The USD/MXN pair faced downward pressure following the release of the latest Bank of Mexico (Banxico) minutes on Thursday, indicating concerns about the inflationary scenario in the country. The minutes suggest a challenging environment, prompting the decision to maintain interest rates at their current levels for a certain period.

Additionally, the recent moderate data from Mexico could provide relief to Banxico by alleviating the pressure for an immediate interest rate reduction. Market participants are now eagerly anticipating next week's release of Consumer Confidence and Headline Inflation data for December.

The US Dollar Index (DXY) attempts to extend its gains for the second consecutive day. However, the Greenback faces a mild challenge due to the improved risk appetite following the mixed US economic data released on Friday. The positive note came from the Nonfarm Payrolls (NFP) report, showing an increase to 216K in December, surpassing both the previous figure of 173K and the market expectation of 170K.

Moreover, the Institute for Supply Management (ISM) reported a slowdown in the services sector for the same month, with the Services Purchasing Managers Index (PMI) falling below expectations.

The mixed signals from these economic indicators highlight the challenges in assessing the overall health of the economy. Traders are likely to keep a close eye on the upcoming Consumer Price Index (CPI) data on Thursday, seeking more clarity on the US economic scenario. Economic data releases can significantly impact market sentiment and influence trading decisions, making them crucial for market participants to monitor.

Last week, Federal Reserve (Fed) Bank of Dallas President K. Lorie Logan highlighted the importance of maintaining sufficiently tight financial conditions to mitigate the risk of inflation picking back up and potentially reversing progress. This perspective aligns with the cautious approach adopted by central banks in managing economic conditions.

However, it contrasts with the sentiment expressed by Richmond Fed President Thomas Barkin last week, who expressed confidence that the economy is on track for a soft landing and emphasized that rate hikes remain a consideration.