USD/MXN moves sideways near 17.21 with a positive bias, Mexico Retail Sales eyed

• USD/MXN retraces its recent losses on risk aversion sentiment.
• The upcoming Mexico and the US elections could exert pressure on the MXN.
• US Dollar recovers its intraday losses despite downbeat US bond yields.

USD/MXN retraces its recent losses, which could be attributed to the risk aversion sentiment in the market. The USD/MXN pair trades higher near 17.21 during the European session on Thursday. The analysis from TD Securities indicates that the performance of the Mexican Peso (MXN) is largely influenced by factors related to the United States (US). The returns on MXN appear to be primarily explained by US and global macroeconomic conditions.

Consequently, if there is a slowdown in the US economy and the US Federal Reserve (Fed) embarks on an aggressive cutting cycle in 2024, it could prompt markets to factor in more rate cuts by the Bank of Mexico (Banxico), potentially leading to underperformance of the Mexican Peso.

Moreover, the upcoming 2024 elections in both Mexico and the US are anticipated to introduce additional uncertainties and volatility, potentially exerting further pressure on the performance of the Mexican Peso.

Mexico's economic calendar lacked notable events during the week, and market participants anticipate the release of November's Retail Sales data. Projections suggest month-over-month and year-over-year ease at 0.5% and 3.2%, respectively, falling short of the previous figures.

The US Dollar (USD) recovers its intraday losses, trading around 103.30 despite the subdued US Treasury yields. As of the press time, the 2-year and 10-year yields are standing at 4.32% and 4.08%, respectively.

The US Dollar continues to receive support from positive investor sentiment, as expectations for the Federal Reserve's (Fed) initial rate cut in March have diminished. This adjustment is reinforced by robust US Retail Sales data released on Wednesday.

Market participants are expected to closely monitor the upcoming release of US housing data scheduled for Thursday, which could provide further insights into the economic landscape and influence the direction of the USD/MXN pair.