USD/MXN moves upward toward 18.3000 on risk aversion amid Middle-East conflict

• USD/MXN continues the winning streak as negative sentiment sours on the Israel-Hamas war.
• Banxico Deputy Governor Mejia has affirmed that the balance of inflation risks has not worsened.
• US Building Permits surpassed expectations, and Housing Starts rebounded in September.

USD/MXN extends the winning streak for the third consecutive session, trading higher around 18.2990 during the Asian session on Thursday. The pair gains ground due to the risk aversion amid the escalating Israel-Hamas military situation.

United States President Joe Biden’s visit to Israel has, so far, fallen short of easing the conflict. The recent explosion at a Gaza hospital, attributed to Israel, has heightened tensions, with Iran considering the imposition of an oil embargo on Israel and escalating its rhetoric against the country.

Bank of Mexico (Banxico) Deputy Governor Omar Mejia has affirmed that the balance of inflation risks has not worsened and highlighted that the existing restrictive monetary policy is successfully managing inflation. Mejia anticipates it to align with Banxico's target by the second quarter of 2025.

US Dollar Index (DXY) is indeed making a comeback, influenced by both economic data from the United States and the escalating Israel-Hamas conflict. The spot price hovers around 106.60, by the press time. However, dovish remarks from multiple Federal Reserve officials suggest a cautious stance, with reluctance to tighten monetary policy in the current economic scenario.

The US housing market is sending mixed signals, with Building Permits in September surpassing expectations, and Housing Starts rebounding, though slightly below the market consensus, adding complexity to the narrative.

Building Permits for September came in at 1.475 million, surpassing the expected 1.45 million. On the other hand, Housing Starts rebounded to 1.35 million, just shy of the market consensus of 1.38 million.

The Beige Book's observation indicating "little to no change" in economic activity during September and early October provides a broader perspective.

Thursday promises a significant infusion of economic insights in the US, featuring Existing Home Sales, the Philly Fed index, and the weekly Jobless Claims report. Additionally, traders are keeping a close eye on Mexico's Retail Sales for August, set to release on Friday, for potential trading opportunities around the USD/MXN pair.