The price of the dollar rises to eight-day highs against the Mexican peso after Mexico's GDP and CPI data

• USD/MXN rises to eight-day highs at 17.15.
• The dollar strengthens mid-Thursday driven by rising US bond yields.
• Mexico's GDP grows more than expected in the fourth quarter while inflation moderates more than expected in the first half of February.

USD/MXN has staged a strong rally at the Wall Street open, soaring from a two-day low of 17.01 early in the European session to an eight-day high of 17.15.

Dollar rebounds as US bond yields rise

The Dollar Index (DXY) has risen strongly during the day, jumping from the European morning three-week low of 103.43 to 104.07, a new daily high. The greenback's strength coincides with the rise in US bond yields, which have reached 4.33% for 10 years and 4.70% for two years, their highest level so far this year.

The dollar also benefits from market sentiment regarding the delay in the start of interest rate cuts by the Fed. CME Group's FedWatch tool only gives a 4.5% chance of a cut in March while reducing to 25.6% the possibility of a cut in May. For June, the probabilities compared to yesterday have also decreased, standing at 49.2% compared to the 56.7% published on Wednesday.

Data from Mexico suggests that Banxico will begin rate cuts before the Fed

On the other hand, the data from Mexico published today favors Banxico to begin its reduction in interest rates before the Fed, driving down the Mexican Peso against the Dollar. Mexican inflation in the first part of February has fallen 0.1%, falling below the expected 0.15% increase. The annual CPI has now stood at 4.45%, below the 4.88% seen previously. Furthermore, the underlying Consumer Price Index grew only 0.24% in the first two weeks of the month, missing the estimated 0.28%.

Finally, Mexican GDP grew 2.5% annually in the fourth quarter of 2023, improving the estimated 2.4%.

Traders now await the US PMI data on services and manufacturing as it could move the dollar back. Previously, the United States has published its figures for weekly unemployment benefit claims. The indicator fell to 201,000 in the week of February 16 compared to the 218,000 expected.

USD/MXN Price Levels

With the pair trading at the time of writing above 17.14, gaining 0.55% daily, the first resistance awaits at 17.22, 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.