USD/MXN edges lower to near 17.06 on subdued US yields, US Retail Sales awaited

• USD/MXN extends losses as US Dollar depreciates on risk-on sentiment.
• The downbeat US Treasury yields contribute to downward pressure for the Greenback.
• MXN is expected to retain its strength for an extended duration as the Mexican elections are on the horizon.

USD/MXN moves into negative territory to extend losses to near 17.06 during the European session on Thursday. This decline in the US Dollar (USD) against the Mexican Peso (MXN) is attributed to decreasing US Treasury yields, which are influenced by improved risk appetite.

At present, the 2-year and 10-year US yields are at 4.56% and 4.23%, respectively, as market participants are analyzing the Federal Reserve's monetary policy outlook amidst robust inflation data and recent statements from Fed officials.

Chicago Fed President Austan Goolsbee's remarks on Wednesday aimed to ease market concerns by suggesting that higher-than-expected consumer prices do not necessarily rule out the possibility of the Federal Reserve considering interest rate cuts in 2024.

Federal Reserve Vice Chair for Supervision Michael Barr has also drawn attention by reaffirming the Federal Reserve's confidence, along with its core Federal Open Market Committee, in the trajectory of US inflation towards the Fed's 2% target.

Earlier this week, Bank of Mexico (Banxico) Governor Victoria Rodriguez Ceja stated in an interview that inflation is projected to resume its downward trajectory. She added that inflation is expected to reach Banxico's 3% target by 2025.

The Mexican Peso is poised to maintain its strength over an extended period, especially with Mexico's upcoming elections looming. Claudia Sheinbaum, the chosen representative of MORENA and favored candidate of Andrés Manuel López Obrador, is expected to secure the presidency in June.

These elections are likely to prioritize policy continuity, with Sheinbaum anticipated to pursue a technocratic approach to policymaking aimed at mitigating domestic political risks. Considering both monetary policy trends and the contained election risks, the Mexican peso is expected to remain robust in the long term.