USD/MXN depreciates to near 17.23 due to downbeat US yields, focus on US PMI

• USD/MXN snaps a two-day winning streak ahead of US PMI data
• The decline in the US bond yields undermines the US Dollar.
• Banxico’s former Governor Agustin Carstens suggested being cautious before making policy decisions.

USD/MXN moves in a downward direction after registering gains in the previous two sessions. The USD/MXN pair trades lower near 17.23 during the European session on Wednesday. The US Dollar (USD) experiences a decline, attributed to a decrease in US bond yields, which may be influenced by expectations of the Federal Reserve (Fed) initiating rate cuts starting in May. The market is fully pricing in a 25 basis point (bps) cut in interest rates for May.

Additionally, former St. Louis Fed President James Bullard presented his perspective, proposing the possibility of the Federal Reserve (Fed) implementing interest rate cuts even before inflation reaches the 2.0% threshold. Bullard speculates that these cuts could potentially take place as early as March.

Agustin Carstens, the former Governor of the Bank of Mexico (Banxico) emphasized the importance of not lowering interest rates prematurely. He stated "Recent developments allow policymakers to look at the future with cautious optimism." Carstens' comments suggest a measured approach to monetary policy decisions in response to current economic conditions.

The performance of the Mexican Peso (MXN) could be significantly influenced by factors associated with the United States (US), according to TD Securities. The interconnection between the Mexican Peso and US-related factors underscores the importance of monitoring developments in the US economy for insights into the trajectory of the MXN.

Looking forward, the Bank of Mexico (Banxico) is scheduled to release the first half-month inflation data for January on Wednesday. This data release is anticipated to provide valuable information about inflation trends in Mexico, which can impact Banxico's decisions regarding interest rates and monetary policy in the upcoming meetings.