USD/MXN retreats to near 17.10 as US Dollar declines on lower yields

• USD/MXN halts its advances on subdued US Bond yields.
• The recent data reinforced the case for the Fed to maintain higher interest rates to address inflationary pressures.
• Mexico’s Current Account (Q4) increased to $11,662M against the expected $5,000M.

The USD/MXN pair experiences a decline after two consecutive days of gains, trading around 17.10 during the early European session on Monday. This downward movement is attributed to subdued US Treasury yields, which are putting pressure on the US Dollar (USD), consequently, undermining the USD/MXN pair.

The US Dollar Index (DXY) is slightly lower, hovering around 103.90, while the 2-year and 10-year yields on US Treasury notes stand at 4.67% and 4.22%, respectively, at the time of writing. However, the US Dollar (USD) maintained stability after recording gains in the past two sessions.

The US Dollar (USD) received support from robust employment data and mixed Purchasing Managers Index (PMI) figures from the United States (US). This reinforced the case for the Federal Reserve (Fed) to maintain higher interest rates to address inflationary pressures.

Investors are expected to closely watch key economic indicators, including Gross Domestic Product Annualized (Q4), Core Personal Consumption Expenditures, and ISM Manufacturing PMI later in the week. Additionally, the release of the Fed Monetary Policy Report will be closely monitored for further insights into the central bank's stance.

On the contrary, the Mexican Peso (MXN) might have found support from positive economic data released on Friday. The Bank of Mexico (Banxico) reported a significant increase in the Current Account (Q4) to $11,662M, surpassing expectations of $5,000M and the previous figure of $908M. Additionally, the Accumulated Current Account/GDP rose by 2.47% in the fourth quarter of 2023, compared to the previous quarter's reading of 0.19%.

Moreover, Mexico's 1st half-month Inflation for February declined by 0.1%, contrary to the expected increase of 0.15% and the previous rise of 0.49%. Similarly, the 1st half-month Core Inflation expanded by 0.24%, slightly below the expected 0.28% and matching the previous figure of 0.25%. Market participants are anticipated to closely monitor the Trade Balance data for January, scheduled for release on Tuesday.