The Dollar rises to three-day highs against the Mexican Peso after a higher than expected PPI in the US.

• USD/MXN rises to three-day highs at 16.87.
• The Dollar rebounds on expectations that the Fed's high rates will remain.
• US producer prices rise more than expected in monthly readings.

USD/MXN began Tuesday's trading in a tight range around 16.77/16.81. Following the release of higher-than-expected US producer price data, the pair rebounded to three-day highs of 16.87.

The Dollar rebounds momentarily with the US PPI

The United States Producer Price Index (PPI) rose 0.5% monthly in April after falling 0.1% in March, as published by the Bureau of Labor Statistics. The increase exceeds market expectations, which expected an increase of 0.3%. The interannual PPI has grown by 2.2%, in line with expectations, while the March data has been revised downwards, going to 1.8% from the 2.1% published a month ago.

Core producer prices (excluding food and energy) have risen 0.5% monthly after falling 0.1% the previous month. The increase exceeds forecasts of 0.2%. The annual indicator has maintained its growth at 2.4%, as expected.

The Dollar Index (DXY) has initially risen on the release to 105.48, its highest level in three days. The momentum has not continued, and the index has lost all the ground gained, now moving around 105.18, losing 0.03% on the day.

Persistently high prices across different indicators may cause the Fed to keep rates elevated for longer, which favors the US dollar. Following today's PPI release, CME Group's FedWatch tool estimates that there is a 91.1% chance that the Federal Reserve will not move at its June meeting. In July, the options of keeping rates unchanged stand at a high 70.4%, while in September they decrease to 36.6%, so the market continues to estimate this date as the ideal one for a first moderation of the restrictive policy of the Fed.

While waiting for the important data on the US Consumer Price Index (CPI) to be published tomorrow, USD/MXN operators will be closely watching today's speech by Jerome Powell, president of the Fed, as he will speak to 14:00 GMT at the Annual General Meeting of the Foreign Bankers Association held in Amsterdam.

In Mexico, the National Institute of Statistics and Geography (INEGI) has today published its Monthly Survey of the Manufacturing Industryshowing that in March the Personnel employed in the sector decreased by 0.5% monthly and hours worked decreased by 0.1%, while salaries increased by 0.6%. On an annual basis, employment in the sector fell 2.1% and hours worked fell 1.3%. Remunerations, on the other hand, increased by 4.5%.

USD/MXN Levels

With the Dollar trading against the Mexican Peso above 16.84, gaining 0.22% on the day, the next resistance zone appears at 16.92, daily moving average of 100 on a one-day chart. Above, the main resistance is in the psychological zone of 17.00 before 17.39, the ceiling of April 25.

On the downside, USD/MXN will find support at 16.72, last week's low, and subsequently around 17.50/17.55. The bottom of 2024 and the last almost nine years at 17.26 will be the strongest point of containment in case of a further decline.