USD/MXN licks Banxico inflicted wounds near 18.80 with eyes on US data

• USD/MXN pares Banxico-led losses ahead of US consumer-centric data.
• Banxico surprised markets with 0.50% rate hike versus 25 bps expected.
• Recession fears seem to underpin US Dollar rebound after Fed talks, US statistics weighed on the greenback.
• US Michigan Consumer Sentiment Index, inflation expectations eyed ahead of next week’s US CPI.

USD/MXN seesaws around 18.80 as it consolidates the weekly loss, as well as the daily fall, while heading into Friday’s European session. In doing so, the Mexican Peso (MXN) pair fades the Banxico-led moves as the US dollar picks up bids amid a cautious mood in the market.

The Mexican central bank, namely Banxico, surprised markets by announcing 50 basis points (bps) rate hike on Thursday. With this, Banxico surpassed market forecasts of a 0.25% rate lift while citing an effort to tame inflation fears with the increase of the benchmark rate to 11.0%.

On the other hand, the US Dollar suffered from the increase in the weekly initial jobless claims, as well as the downbeat comments from Richmond Federal Reserve (Fed) President Thomas Barkin. That said, the US Weekly Initial Jobless Claims rose to 196K versus 190K expected and 183K prior. “The advance number for seasonally adjusted insured unemployment during the week ending January 28 was 1,688,000, an increase of 38,000 from the previous week's revised level," said the US Department of Labor (DOL) showed on Thursday.

Elsewhere, Fed’s Barkin appeared too dovish while suggesting rate cuts as he said that it would make sense for the Fed to steer "more deliberately" from here due to lagged effects of policy. Previously, Fed Chair Jerome Powell hesitated in cheering the upbeat US jobs report and raised fears of no more hawkish moves from the US central bank.

While delving deeper into the recent moves, the widest negative difference between the US 10-year and 2-year Treasury bond yields since 1980 amplified the recession woes the previous day. The yield curve inversion remains around the same level as both these key bond yields stay inactive near 3.67% and 4.49% respectively by the press time. The same favor the market’s rush towards risk safety and underpins the US Dollar rebound. That said, the US Dollar Index (DXY) prints mild gains around 103.38 at the latest.

Moving on, the early signals for the next week’s US inflation data, namely preliminary readings of the US Michigan Consumer Sentiment Index and 5-year Consumer Inflation Expectations for February, will be crucial for immediate directions. Considering the upbeat expectations from the scheduled data, as well as the recession woes, the currency pair is likely to witness further recovery.

Technical analysis

USD/MXN remains directed towards the multi-month low of 18.50, marked earlier in February, unless providing a daily closing beyond the 50-DMA hurdle surrounding $19.20.