USD/MXN retreats from weekly highs drops below the 100, 20-DMAs

• USD/MXN edges lower by 0.48% on positive market sentiment and a weakened US Dollar.
• Despite hawkish remarks from Fed officials, the US Dollar remains under pressure, with the DXY marking minimal gains at 105.45.
• Upcoming political developments and potential credit rating revisions in Mexico may affect the Peso's trajectory.

The emerging market currency the Mexican Peso (MXN) counterattacks the US Dollar (USD) after the exotic pair reached a weekly high of 17.2489, but it has trimmed those gains. At the time of writing, the USD/MXN changes hands at 17.1478, down 0.48%.

MXN strengthens to 17.1400ish on soft US Dollar due to a drop in US Treasury bond yields

Market sentiment remains positive, as shown by US equities trading with gains. Business activity in the United States (US) presented minuscule changes as revealed by S&P Global, with Manufacturing activity improving but standing in recessionary territory. Although expanded, the Services and Composite PMIs portrayed the country's economic slowdown.

Federal Reserve’s officials had been unleashed on the central bank space, led by the Boston Fed President Susan Collins. She suggested the possibility of further tightening while emphasizing the need for patience. Fed Governor Michell Bowman strongly determined that more rate hikes are necessary to control inflation.

Despite US central bank policymakers' hawkish rhetoric, the buck stands pressured. The US Dollar Index (DXY), which tracks the buck’s value vs. a basket of six currencies, prints minimal gains of 0.07%, at 10.45. Plunging US Treasury bond yields are a headwind for the USD/MXN, while also a tranche of upbeat Mexican data, supported the Peso.

Inflation in Mexico slowed down for the first half of September, hitting 4.44% YoY, down from 4.64% in August, below 4.46% forecasts. At the same time, the core Consumer Price Index rose 5.78%, above estimates of 5.76% YoY, but below August’s 6.21%. It should be said the Bank of Mexico (Banxico) held rates unchanged at 11.25% in the latest monetary policy meeting and emphasized the need to hold rates for a long period of time.

Given the backdrop, further USD/MXN downside is expected but capped around the 17.0000 figure.  Traders should know about political developments, as Mexico is headed for general elections. That, alongside the latest economic budget beginning to generate worries about a revision of the country’s credit rating, can weigh on the Mexican Peso.

USD/MXN Price Analysis: Technical outlook

Although the USD/MXN pair is set to finish the week with gains, price action has failed to achieve a new cycle high, with buyers eyeing the September 7 high at 17.7074. A breach of that level could open the door to test the 18.0000 figure, but it must reclaim the 100-day moving average (DMA) at 17.1888. On the downside, the pair’s fall is cushioned by the 50-DMA at 17.0302, before challenging 17.0000.