USD/MXN falls on risk-on impulse and a soft US Dollar ahead of next week’s FOMC

• USD/MXN dropped from daily highs above $19.00 as market sentiment improved.
• Data from the United States shows the economy’s resilience despite the ongoing Fed’s aggression.
• Investors are eyeing US Industrial Production, Consumer Sentiment, and next week’s FOMC meeting.

USD/MXN hovers nearby the $19.00 figure on Thursday, with risk aversion taking center stage, amidst a turbulent week, in the global banking system. Investors’ flight to safety weighed on the Mexican Peso (MXN), which is set to finish the week with losses of 0.15% after testing multi-year lows of 17.8967. However, the MXN holds to gains. At the time of writing, the USD/MXN is trading at around 18.90s, below its opening price by 0.23%.

Sentiment improvement a headwind for USD/MXN

Traders’ mood improved on headlines that major banks in the United States (US) stepped in to help the First Republic Bank. The European Central Bank (ECB) lifted rates by 50 bps, stating that inflation remained elevated and did not offer any cues about future monetary policy meetings.

Aside from this, the economic data in the United States (US) revealed that the number of people filing for unemployment benefits, as reported by the US Bureau of Labor Statistics (BLS), decreased to less than 200,000. This indicates that the job market is still tight, warranting further action by the Fed. The number of initial jobless claims increased by 192,000, lower than the 205,000 expected by experts. The housing data, including Housing Starts and Building Permits, also surpassed expectations, indicating that the economy is strong despite the Federal Reserve’s aggressive tightening cycle.

Lately, the Mexican Peso recovered ground vs. the US Dollar (USD), which according to the US Dollar Index, is down 0.33%, at 104.397. As sentiment improved, the USD/MXN fell from 19.7986 to the day’s low of 18.8812.

US Treasury bond yields are edging, with the 10-year Treasury bond yielding up six basis points, at 3.522%. For the upcoming meeting, money market futures odds for a 25 bps lift by the Fed moved from 45.4% to 83.4%.

Also read: USD/MXN rallies sharply above $18.80 on SVB crisis, Fed rates repricing

What to watch?

The US economic calendar will feature Industrial Production, Capacity Utilization, and the University of Michigan (UoM) Consumer Sentiment. Traders are eyeing the following week’s Federal Open Market Committee (FOMC) monetary policy decision.

USD/MXN Technical levels