USD/MXN advances on mixed mood, rising US bond yields as Banxico’s decision looms

• USD/MXN ascends by 0.28%, buoyed by a robust USD and higher US bond yields.
• Powell’s reaffirmation of future Fed rate hikes underpins the US Dollar.
• Market participants eye Banxico’s impending monetary policy decision.

The USD/MXN pair advances during the North American session on mixed market sentiment, underpinned by higher US bond yields and a solid US Dollar (USD). Traders’ focus is on the Bank of Mexico (Banxico) monetary policy decision late in the New York session. The USD/MXN is trading at 17.1824, up 0.38%.

Market participants anticipate Banxico will keep rates unchanged as the US Dollar rises

US equities trade mixed as stocks fluctuated between gains and losses, a headwind for the USD/MXN. Major European central banks raising rates, led by the Bank of England (BoE) hiking rates by 50 bps, spurred recessionary fears as banks struggled to curb inflation.

The USD/MXN printed a leg-up supported by comments the Federal Reserve Chair Jerome Powell reiterated his Wednesday stance, at the one expressed by the dot-plots, as he said: “We (Fed) think we are within a couple of rate hikes of the level we need to be.” He emphatically commented no rate cuts are expected and will have to wait until the Fed is confident that inflation is slowing towards its 2% target.

Data-wise, the US Bureau of Labor Statistics (BLS) revealed that Initial Jobless Claims reached their highest level since October 2021, growing by 264K exceeding estimates of 260K. At the same time, the US Commerce Department released the US Current Account widened to $219.3 billion in Q1, from a revised $216.2 billion in Q4 2022, exceeding estimates of $217.5 billion.

Recently crossing the wires, Existing Home Sales in May grew at a 0.2% MoM pace, above estimates of a -0.5% plunge, more than the upward revised April-s -3.2%  contraction.

Aside from this, Banxico is expected to keep rates unchanged at 11.25%, though set to remain at higher levels, as stressed by the bank’s Governing Council in its May meeting. Bank of Mexico Governor Victoria Rodriguez Ceja commented the central bank needs to be cautious as the bank faces a complex outlook and uncertainty regarding monetary policy. She added that keeping rates at their current level would be required for a prolonged period.

Upcoming events

Banxico’s monetary policy decision would be due at around 19:00 GMT. The US economic agenda will feature the release of S&P Global PMIs and the Fed parade, which would keep USD/MXN traders entertained.

USD/MXN Price Analysis: Technical outlook

The USD/MXN continues to bottom at around 17.00 during the last seven days. But in the medium term, the USD/MXN remains downward biased, threatening to dive below the 17.00 handle, eyeing October 2015 lows of 16.3267 as it continues on its way towards the 16.0000 mark. Oscillators support the thesis of the Mexican Peso (MXN) strengthening, as the Relative Strength Index (RSI) sits at bearish territory, while the three-day Rate of Change (RoC) shows that buyers are gathering momentum.

If USD/MXN holds its ground above 17.00, that will increase buyers’ odds of reaching the 20-day Exponential Moving Average (EMA) at 17.3215, as the pair edged toward the May 16 low of 17.4038.