USD/MXN moves sideways near 16.70 on expectations of the Fed prolonging higher rates

• USD/MXN could receive upward support on hawkish comments from Fed members.
• The Mexican Peso could potentially benefit from a risk-on sentiment.
• The lower US Treasury yields could undermine the US Dollar.

USD/MXN recovers recent losses, putting efforts to climb higher to nearly 16.70 during the European session on Tuesday. The US Dollar (USD) gains ground, driven by hawkish remarks from US Federal Reserve (Fed) officials. Suggestions from Fed members to delay interest rate cuts have bolstered the idea of maintaining elevated interest rates for a longer period.

Atlanta Fed President Raphael Bostic's expectation of only one rate cut this year reflects caution against premature reductions that could lead to disruption. Conversely, Chicago Fed President Austan Goolsbee emphasized the necessity for further evidence of declining inflation before advocating for such rate adjustments.

The USD/MXN pair experienced downward pressure amidst a risk-on sentiment, while the Mexican Peso (MXN) strengthened despite the recent interest rate cut by the Bank of Mexico (Banxico). Banxico Governor Victoria Rodriguez Ceja commented that the initial rate reduction doesn't signify the end of the battle against inflation. She emphasized the central bank's cautious approach, indicating that adjustments to the main reference rates would be gradual and based on forthcoming data.

The Banxico lowered interest rates due to significant declines in both inflation and growth over the past year. The SNB projects inflation to average 1.9% in 2024, although the current inflation rate remains notably lower at 1.2%. However, there was a noteworthy increase in the Consumer Price Index (CPI) in February, rising by 0.6% compared to the previous month's 0.2% increase.