USD/MXN consolidates below 17.00 as investors await Fed policy decision

• USD/MXN struggles to find a decisive move as investors shift focus toward Fed’s policy.
• The trigger that could turn investors anxious is the interest rate guidance from Jerome Powell.
• Semi-annual inflationary pressures in Mexico increased at a higher momentum in July

The USD/MXN pair is demonstrating back-and-forth moves below the crucial resistance of 17.00 in the early European session. The asset struggles to find a direction despite the mega event of an interest rate decision by the Federal Reserve (Fed), which will be announced on Wednesday.

The reasoning behind the lackluster performance of the asset is the certainty among investors that the Fed will raise interest rates by 25 basis points (bps) to 5.25-5.50%. The trigger that could turn investors anxious is the interest rate guidance from Fed Chair Jerome Powell.

S&P500 futures remain choppy in Asia, portraying a quiet market mood. US equities found buying interest on Monday after S&P Global reported upbeat preliminary factory activity data for July. Manufacturing PMI landed at 49.0 significantly higher than the consensus of 46.4 and the former release of 46.3. Investors should note that despite recovery in factory activities a figure below 50.0 is considered a contraction. While Services PMI dropped to 52.4 vs. the estimates of 54.0 and the former release of 54.4.  

The US Dollar Index (DXY) has posted a marginal correction from its weekly high of 101.40. The asset is struggling to continue its five-day winning streak as July’s interest rate hike from the Fed is certain. Earlier, Jerome Powell conveyed that two more interest rate hikes are appropriate this year. Confirmation of one more interest rate hike in the Fed’s guidance might infuse strength in the USD Index.

On the Mexican Peso front, semi-annual inflationary pressures increase at a higher momentum in July. Headline Consumer Price Index (CPI) elevated at a pace of 0.29% vs. the estimates of 0.27% and the former release of 0.02%. Core inflation that excludes volatile oil and food prices grew at a pace of 0.27% against the estimates of 0.22%.