USD/MXN declines to near 16.60 as Mexico's manufacturing sector maintains stability

• USD/MXN depreciates as growth in Mexico's manufacturing sector remains steady in March.
• S&P Global Mexico Manufacturing PMI came in at 52.2 in March, remaining largely unchanged from 52.3 prior.
• US Dollar could strengthen as traders revise their expectations of Fed rate cuts in June.

USD/MXN retraces its recent gains, depreciating to near 16.60 during the European session on Tuesday. The Mexican Peso (MXN) strengthens as growth in Mexico's manufacturing sector remains steady in March, contributing to the depreciation of the USD/MXN pair.

Moreover, Mexican inflation has increased to 0.27% and 0.33% for both headline and core measures, respectively, in the first half of March. This positive development has allowed the Bank of Mexico (Banxico) to maintain tight borrowing conditions as part of its efforts to address ongoing inflationary pressures.

In March, the headline S&P Global Mexico Manufacturing Purchasing Managers’ Index (PMI) posted a reading of 52.2, remaining largely unchanged from February's 52.3. This signifies continued improvement in the sector's health. Although the growth rate was moderate, it remained above its long-run trend.

Following positive ISM Manufacturing PMI data from the United States (US) on Monday, US Treasury bond yields experienced a surge, consequently limiting the decline of the USD/MXN pair.

The US ISM Manufacturing PMI revealed an unexpected expansion in March, with the index rising to 50.3 from February's 47.8, surpassing expectations of 48.4. This reading marked the highest level observed since September 2022. Additionally, US ISM Manufacturing Prices Paid increased to 55.8 in March, surpassing both the expected 52.6 and the prior reading of 52.5.

The US Dollar Index (DXY) maintains its upward momentum, extending its winning streak for the fifth consecutive session and trading around 105.00 at present. This favorable trend is attributed to traders revising their expectations for a quarter-point interest rate cut by the Federal Reserve during its June meeting.