USD/MXN drops to near 16.87 on improved risk appetite, focus on US PPI

• USD/MXN faces challenges as traders bet on speculations of Fed rate interest cuts.
• US Dollar fails to cheer the improved US bond yields and upbeat inflation data.
• Mexican Peso moves on an upward trajectory despite softer production data.

USD/MXN extends its losses for the second straight day, possibly due to the improved risk appetite as traders price in the possibility of resuming rate cuts in March and May. The USD/MXN pair trades lower near 16.87 during the European session on Friday.

The improved US Treasury yields seem failing to provide any support to the US Dollar (USD). The US Dollar Index (DXY) trades lower near 102.20 with the 2-year and 10-year yields on US bond coupons standing at 4.27% and 3.96%, respectively, at the time of writing.

The favorable US inflation data were not successful in maintaining the strength of the US Dollar as traders are more inclined toward Fed rate cuts. December's US Consumer Price Index (CPI) reported a year-on-year increase of 3.4%, surpassing both November's 3.1% and the expected market figure of 3.2%. Additionally, the monthly CPI growth for December showed a 0.3% increase, exceeding the market projection of 0.2%.

Traders are likely awaiting the release of the US Producer Price Index (PPI) data for December. Additionally, they may keenly observe the upcoming speech by Federal Reserve member Neel Kashkari in the North American session. These events are expected to provide further insights into the economic landscape of the United States.

On Mexico’s side, INEGI revealed November’s Industrial Output (MoM) on Thursday, showing a decline of 1.0%, swinging from the previous growth of 0.6%. While the annual data contracted to 2.8% against the 4.8% as expected. These softer figures might have capped the advances of the Mexican Peso (MXN). Market participants will eye Retail Sales data in the upcoming week.