USD/MXN depreciates to near 17.08 on improved risk appetite, Mexico Trade Balance eyed

• USD/MXN extends losses on improved risk sentiment.
• US Dollar Index declines to around 103.70 amid subdued US Treasury yields.
• Banxico officials expect the prospect of implementing the first rate cut in March.

USD/MXN extends its losses for the second successive day, trading lower around 17.08 during the early European hours on Tuesday. This decline can be attributed to the weakened US Dollar (USD), primarily influenced by subdued US Treasury yields. Moreover, improved risk appetite in the market exerts additional downward pressure on the Greenback, acting as a headwind for the USD/MXN pair.

The US Dollar Index (DXY) dips to around 103.70 amid the subdued US Treasury yields. At the time of writing, the 2-year and 10-year yields on US bond coupons stand at 4.71% and 4.28%, respectively. The Federal Open Market Committee (FOMC) minutes have reinforced a data-dependent approach by the Federal Reserve (Fed), signaling a more dovish stance, which has further weighed on the US Dollar (USD).

Investors will be closely monitoring several key economic indicators scheduled for release later this week, including Gross Domestic Product Annualized (Q4), Core Personal Consumption Expenditures, and the Fed Monetary Policy Report.

The recent meeting minutes revealed that three policymakers of the Bank of Mexico (Banxico) are contemplating the prospect of implementing the first rate cut at the upcoming March meeting. This consideration is strengthened in light of the economic deceleration highlighted by the recent inflation figures. This sentiment could potentially exert pressure on the Mexican Peso, consequently supporting the USD/MXN pair.

Contrary to expectations, Mexico's 1st half-month inflation for February decreased, while 1st half-month Core Inflation expanded slightly below expectations. Market participants are eagerly awaiting the release of Trade Balance data for January on Tuesday, with close attention to potential implications for the economic landscape and currency movements.