USD/MXN extends losses around 18.0900, awaits Fed policy decision

• USD/MXN receives upward support as Crude prices could surge due to Middle-East conflict.
• The escalation of the Israel-Hamas war could provide minor support for the Mexican Peso.
• Fed’s policy decision is awaited on Wednesday; market expectations lean towards policy rates to remain at 5.5%.

USD/MXN continues the downward trajectory for the third successive session since Mexico's employment data revealed a robust labor market, showcasing the enduring strength of the Mexican economy. The pair trades lower around 18.0900 during the Asian session on Monday.

On Thursday, Mexico’s Jobless Rate showed a decline to 2.9% in September from August's 3.0%. However, Mexico revealed on Friday its Trade Balance report, which showed that the trade deficit widened in September from $1.377B in August to $1.481B.

Additionally, the escalating Middle-East conflict is supposed to reinforce commodity prices like Crude oil and Gold, which might provide some support to the Mexican Peso (MXN). Israel has expanded its ground operations in Gaza and attacked multiple Hamas sites, which could affect the currencies of the emerging markets including the MXN.

Deputy Governor Jonathan Heath of the Bank of Mexico (Banxico) recently pointed out that the increasing government debt in 2024 will introduce an additional challenge to the battle against inflation. He emphasized the existence of a desynchronization between monetary and fiscal policies.

The US Dollar Index (DXY) seems to be keeping a low profile, remaining relatively silent as a decline in US Treasury yields puts pressure on the Greenback. However, the 10-year US Bond yield is showing signs of a rebound at 4.87% as of the latest update.

US Core Personal Consumption Expenditures Price Index data revealed on Friday, that the yearly index declined to 3.7% in September from 3.8% previous reading. The monthly figures improved to 0.3% from 0.1% previously.

All eyes are on the upcoming Federal Reserve (Fed) meeting scheduled on Wednesday, with the market sentiment currently leaning towards the expectation that interest rates will remain consistent at 5.5%.