The price of the dollar moves around 17.10 against the Mexican peso as Mexico's inflation slows

• USD/MXN moves around 17.10 on Friday after reaching a nine-day high of 17.15 on Thursday.
• Inflation for the first half of February in Mexico fell 0.1% compared to the expected increase of 0.15%.
• Dollar improves on appreciating US Treasury yields due to lower hope of Fed rate cuts.

The USD/MXN remains firm this Friday after reaching a nine-day high at 17.15 yesterday, Thursday. The pair is trading at the time of writing around 17.10, losing a slight 0.04% daily, as it opened the day around 17.12. The cross remains close to the weekly highs supported by the moderation of inflation in Mexico and by the mixed US data published yesterday.

Data from Mexico and the US support the dollar

In Mexico, inflation in the first half of February fell 0.1%, compared to the expected increase of 0.15% and the previous growth of 0.49%. The core CPI grew 0.24% in the same period compared to the estimated 0.28% and the previous 0.25%.

The National Institute of Statistics and Geography (INEGI) reported that the Mexican Gross Domestic Product increased by 0.1%, as expected in the fourth quarter of 2023. The previous growth was 1.1%. The annual report showed an increase of 2.5% against the expected 2.4% and the previous 3.3%.

The US Dollar Index (DXY) remains near 103.90, supported by rising US yields, which stand at 4.72% and 4.32% for US Treasuries at 2 and 10 years, respectively, at the time of writing this report. Additionally, the US dollar (USD) received bullish support on Thursday, boosted by strong jobs data from the United States (US), which serves as a tailwind for the USD/MXN pair.

According to the U.S. Bureau of Labor Statistics (BLS), weekly jobless claims fell below consensus expectations, with numbers falling to 201,000 for the week ending February 16, below the market forecast of 218,000 and the previous figure of 213,000.

Furthermore, hawkish comments from US Federal Reserve officials, emphasizing the avoidance of interest rate cuts in the near term, could further strengthen the dollar. Federal Reserve Governor Christopher J. Waller stated that the start of monetary policy easing and the number of rate cuts will depend on incoming data, and that the Committee is willing to wait a little longer before to consider the possibility of relaxing monetary policy.

In a moderated discussion at a conference hosted by Princeton University in New Jersey, Federal Reserve Governor Lisa D. Cook noted that the risks to meeting employment and inflation goals have been better balanced. She favored greater confidence in inflation converging towards 2% before initiating rate cuts. Cook also acknowledged that the monetary policy rate will need to be adjusted as disinflation prospects become more sustainable.

The market assumes that the Fed will delay the rate cut to the second half of the year. The CME Group's FedWatch tool today places the options for a first cut in March at 2.5%, reducing the probability of it happening in May to 20.5%. For June, it is estimated that the chances of a first reduction are 52.8%.

Today, traders expect Mexico's current account data for the fourth quarter of 2023 and the US Federal Reserve will present its monetary policy report to Congress.

USD/MXN Price Levels

The very short-term trend is leaning upwards, with first resistance at 17.22, the February 13 high. Further up, USD/MXN will need to break 17.28 (February high) to advance towards 17.38 (2024 high recorded in January).

On the downside, the first support will be at 16.99, the five-week low recorded on February 20. Below, the cross could extend its decline towards the support located at 16.78, the 2024 low reached on January 8. A break of this level, the fall could head to 16.69/16.70, where the lows of the end of August 2023 are, and subsequently to 16.62, the floor of 2023 and the last eight years.