USD/MXN inches higher to near 17.10 as Mexican inflation slows down

• USD/MXN gained ground for the second consecutive session on Friday.
• Mexico’s 1st half-month Inflation declined by 0.1% in February, against the expected 0.15% rise.
• USD Dollar improves as US Treasury yields appreciate on diminished hope of Fed rate cuts.

USD/MXN continues its upward trajectory for the second consecutive day, edging higher to near 17.10 during the early European hours on Friday. The pair receives upward support following softer data from Mexico and mixed data from the United States (US) released on Thursday.

Mexico’s 1st half-month Inflation declined by 0.1% in February, against the expected rise of 0.15% and the previous growth of 0.49%. While the 1st half-month Core Inflation grew by 0.24% against the expected 0.28% and 0.25%.

INEGI reported that the Mexican Gross Domestic Product (QoQ) increased by 0.1%, as expected in the fourth quarter of 2023. The previous growth was 1.1%. The annual report showed an increase of 2.5% against the expected 2.4% and 3.3% prior.

The US Dollar Index (DXY) hovers near 103.90, supported by higher US yields, standing at 4.72% and 4.32% for 2-year and 10-year US Treasury bonds, respectively, at the time of writing. Additionally, the US Dollar (USD) received upward support on Thursday, propelled by robust labor data from the United States (US), which serves as a tailwind for the USD/MXN pair.

According to the US Bureau of Labor Statistics (BLS), weekly Initial Jobless Claims fell below consensus expectations, with figures declining to 201K for the week ending on February 16, lower than the market's anticipation of 218K and the previous figure of 213K.

Furthermore, hawkish remarks from US Federal Reserve officials, emphasizing the avoidance of interest rate cuts in the near term, could further reinforce support for the US Dollar. Federal Reserve Governor Christopher J. Waller stated that the initiation of policy easing and the number of rate cuts will depend on incoming data, with the Committee prepared to wait a little longer before considering monetary policy easing.

Participating in a moderated discussion at a Conference hosted by Princeton University in New Jersey, Federal Reserve Governor Lisa D. Cook remarked that risks to achieving employment and inflation goals have moved into better balance. She expressed a preference for greater confidence that inflation is converging to 2.0% before initiating rate cuts. Cook also acknowledged that the policy rate will eventually need adjustment as the disinflation outlook becomes more sustainable.