USD/MXN stretches higher to near 17.08 on risk-off sentiment, focus on US Annualized

• USD/MXN snaps its losing streak on risk-off sentiment on Wednesday.
• US Gross Domestic Product Annualized (Q4) is expected to be unchanged at 3.3%.
• Mexico’s Trade Balance posted a trade deficit of $4.315 billion in January, against the expected deficit of $2.286 billion.

USD/MXN rebounds after experiencing losses in the prior two sessions, with the pair advancing to around 17.08 during European trading hours on Wednesday. The strength of the US Dollar (USD) is driving the movement in the USD/MXN pair, possibly influenced by a risk-off sentiment prevailing in the market ahead of the release of the preliminary Gross Domestic Product Annualized (Q4) data from the United States scheduled for later in the day.

The US Dollar Index (DXY) continues to strengthen despite the subdued US Treasury yields. The DXY has risen to nearly 104.10, while the 2-year and 10-year yields on US Treasury bonds stand at 4.69% and 4.29%, respectively, at the time of reporting.

In economic news, the US Housing Price Index (MoM) saw a modest increase of 0.1% in December, falling short of expectations for a 0.3% increase and below the prior month's increase of 0.4%. Additionally, US Durable Goods Orders experienced a significant decline of 6.1%, contrasting sharply with expectations for a decrease of 4.5% and the previous month's decrease of 0.3%.

On Mexico’s side, the higher interest rates set by the Bank of Mexico (Banxico) at 11.25% may have had an impact on economic activities. The Jobless Rate data by INEGI is expected to be released on Thursday, with an anticipated slight increase to 2.8% in January from the previous increase of 2.6%.

On Tuesday, Mexico reported the Trade Balance for January, revealing a trade deficit of $4.315 billion, surpassing the expected deficit of $2.286 billion and exceeding the previous deficit of $4.242 billion. The seasonally adjusted figures reported a deficit of $0.302 billion compared to the previous surplus of $1.659 billion. These subdued trade figures may have contributed to undermining the Mexican Peso (MXN), consequently providing support for the USD/MXN pair.