USD/MXN drops below 18.0000 on solid US economic data

• Mexican Peso retreats from the recent gains on upbeat US data.
• Upbeat China data could contribute to undermining the US Dollar.
• Mexican Retail Sales (MoM) in August anticipates stagnation at 0.0%.

USD/MXN aims to retreat from the recent gains, trading lower around 18.0000 during the Asian session on Wednesday. The pair faces challenges after the release of upbeat data from the United States (US) on Tuesday.

The US Bureau of Economic Analysis (BEA) revealed that Retail Sales surpassed expectations of 0.3% MoM, rising to 0.7% in September. Additionally, the Retail Sales Control Group recorded a notable increase of 0.6%, compared to the previous hike of 0.2%.

Moreover, the Federal Reserve reported that Industrial Production demonstrated improvement by 0.3%, contrary to the expected stagnation of 0.0%.

The US Dollar Index (DXY) loses intraday gains after the positive Chinese data, struggling to hold ground near 106.10, by the press time. However, US Treasury yields improves, with the 10-year US Treasury bond yield reaching 4.84% could support the Greenback.

Chinese Gross Domestic Product in the third quarter exceeded expectations, showing a growth of 1.3% compared to the anticipated 1.0%. The annual report for the same quarter revealed a 4.9% increase, surpassing the expected 4.4%.

Additionally, China's Retail Sales (YoY) demonstrated a rise of 5.5%, surpassing both the previous figure of 4.6% and the expected 4.9%.

Market participants seek more cues on the Fed’s monetary policy trajectory following the dovish remarks from multiple Fed officials. On Tuesday, Thomas Barkin, the President of the Richmond Fed, stated that the present policy is already viewed as restrictive. Expressing uncertainty about the upcoming FOMC monetary policy meeting in November.

Additionally, Minneapolis Federal Reserve Bank President Neel Kashkari mentioned that inflation has persisted for a more extended period than initially anticipated and remains excessively elevated. This perspective aligns with the dovish stance maintained by several other Fed officials.

The USD/MXN pair is influenced by USD price dynamics and overall risk sentiment as there are no economic data releases from Mexico. Additionally, the escalating geopolitical tensions between Israel and Hamas could limit the downside of the pair and bolster the US Dollar as a safe-haven asset.

The recent publication of Banxico's monetary policy minutes reveals a hawkish outlook, with members expressing reluctance towards considering a near-term rate cut. The prevailing consensus among members reflects a belief in maintaining interest rates at elevated levels for an extended period. This stance is primarily driven by the observed high prices in the services segment, identified as a significant factor impacting inflation data. This hawkish sentiment underscores a cautious approach to monetary policy, prioritizing the management of inflationary pressures.

Investor attention is expected to focus on US housing data and speeches from Fed officials on Wednesday. Additionally, Mexico's Retail Sales for August, scheduled for release on Friday, will be closely monitored by traders for potential trading opportunities around the USD/MXN pair.