USD/MXN trims intraday gains despite an improved US Dollar, hovers near 17.10

• USD/MXN attempts to snap its losing streak on improved Greenback.
• US Dollar could face pressure as the Fed is expected to reduce policy rates more than other major central banks in 2024.
• The downbeat Mexico Retail Sales data might have put downward pressure on the MXN.

USD/MXN snaps a three-day losing streak amid an improved US Dollar (USD). The USD/MXN pair trades higher near 17.10 during the early European hours on Monday. The US Dollar Index (DXY) rising to near 103.20 with improved 2-year and 10-year yields on US Treasury bond coupons standing at 4.41% and 4.12%, respectively, at the time of writing.

However, the US Dollar encountered downward pressure due to prevailing market expectations leaning towards the US Federal Reserve (Fed) reducing policy rates more than other major central banks in 2024. However, the Greenback may find support, benefiting from its safe-haven status, especially amid concerns surrounding maritime trade in the Red Sea. Consequently, this contributes upward support to underpinning the USD/MXN pair.

The heightened geopolitical threat, as the United States (US) and the United Kingdom (UK) aim to escalate their campaign without triggering a broader conflict with Iran, has led to more ships diverting away from the Suez Canal and the Red Sea. This redirection is prompting shipping vessels to carefully assess the risks associated with navigating the Red Sea, with rising insurance costs becoming a significant consideration.

On the other side, the Retail Sales released by INEGI on Friday showed a decline in the retail sales in Mexico in November. The annual growth reduced to 2.7% from the previous increase of 3.4%, falling short of expected 3.2%. In the meantime, the monthly sales came at 0.1% against the expected 0.5%. The previous reading was 0.8%.

The Bank of Mexico (Banxico) will release the 1st half-month Inflation data for January on Wednesday. The market expects a reduction to 0.38% from the 0.58% prior. While the core inflation could report a figure of 0.28% against the previous reading of 0.46%.