USD/MXN stretches lower to near 17.08 on risk appetite, US PCE data eyed

• USD/MXN loses ground on improved risk-on sentiment.
• US Dollar declines despite improved US Treasury yields.
• Banxico expects to achieve the 3% goal in the second quarter of 2025.

USD/MXN faces challenges as the US Dollar (USD) loses ground after registering gains in the previous session despite the improved US Treasury yields. The USD/MXN pair edges lower to near 17.08 during the European trading hours on Thursday.

The USD/MXN pair witnesses the weakness possibly due to improved risk appetite ahead of the release of key US Personal Consumption Expenditures - Price Index data, which could potentially influence the Federal Reserve's monetary policy stance.

The US Dollar Index (DXY) depreciates on Thursday and maintains its position around 103.80 with 2-year and 10-year yields on US Treasury coupons standing at 4.65% and 4.28%, respectively, by the press time.

The preliminary US Gross Domestic Product Annualized (Q4) improved by 3.2%, against the 3.3% expected. Additionally, the preliminary US Gross Domestic Product Price Index (Q4) rose by 1.7%, surpassing both expected and previous rises of 1.5%.

On the Mexican side, Governor Victoria Rodriguez Ceja announced that the Gross Domestic Product (GDP) was downwardly revised to 2.8% from 3.0% in the previous report to. She anticipates the GDP for 2025 to remain at 1.5%, consistent with previous projections. Additionally, the Trade Balance indicated a trade deficit in January exceeding expectations. Jobless Rate data is scheduled for release on Thursday.

Bank of Mexico (Banxico) estimates that they will achieve the 3% goal in the second quarter of 2025. Banxico’s Deputy Governor Jonathan Heath supports the notion of a quarter of a percentage cut to adjust real rates. Subsequently, he favors maintaining higher rates for an extended duration.