USD/MXN buoys around 16.80 amid an improved risk appetite

• USD/MXN could extend its losing streak in hopes of the Fed reducing policy rates in June.
• CME FedWatch Tool suggests a 66.6% probability of a rate cut in June.
• Mexico’s Industrial Output YoY and MoM surged by 2.9% and 0.4%, respectively, in January.

USD/MXN extends its losing streak that commenced on February 29 as the US Dollar (USD) weakens on improved risk appetite as market participants still believe that the Federal Reserve may reduce policy rates in June despite the US inflation data. The USD/MXN pair is hovering around 16.80 during the European trading hours on Wednesday.

In February, US CPI (YoY) rose by 3.2%, surpassing estimates of 3.1%. The monthly inflation met expectations at 0.4%, higher than the previously observed 0.3%. US Core CPI increased by 3.8% year-over-year, above the anticipated 3.7% but below the previous reading of 3.9%.

CME FedWatch Tool suggests the probability of a rate cut in March has decreased to 1.0%, while it stands at 15.6% for May. In June, the likelihood of a rate cut is estimated to be 66.6%. Attention will be on the US Core Producer Price Index (PPI) and Retail Sales data scheduled for release on Thursday.

On the Mexican side, Industrial Output (YoY) surged by 2.9% in January, contrasting with the previous flat reading of 0.0%, and surpassing market expectations of 2.1%. On a month-over-month basis, there was a 0.4% increase as anticipated, swinging from the previous decline of 0.7%.

While the annual inflation rate decreased from a seven-month high in January, Core Inflation experienced a higher increase compared to the previous reading. However, Headline Inflation increased less than expected and was lower than the previous rise. Market participants are eagerly awaiting the upcoming policy meeting of the Bank of Mexico (Banxico) scheduled for March 21.