USD/MXN falls, while the Mexican peso gains momentum from the US mixed CPI.

• USD/MXN hit a daily low below 18.00 in reaction to US CPI data.
• Sentiment turned mixed as US core CPI remained unchanged, cementing the case for a Fed rate hike in May.
• Federal Reserve officials remain committed to fighting inflation, even if it causes a recession.

He Mexican peso (MXN) continued to strengthen against the US dollar (USD), after the contradictory data on inflation in the US, which consolidated the possibility of a new rate hike by the US Federal Reserve (Fed). at the next meeting in May. He USD/MXN It is trading around 18.08, losing 0.5% from its opening price.

Inflation in the United States falls, except for the core CPI

US stocks fluctuate after the important inflation report in March. The Consumer Price Index (CPI) rose 5% yoy, below estimates of 5.3% and down from 6% in February, showing that the Fed’s tightening is working. However, excluding volatile items such as Food and Energy, the so-called core CPI rose 5.6% yoy, flat compared to consensus and the previous month’s data.

With core CPI holding firmer than expected, the Federal Reserve (Fed) is expected to raise rates by 25 basis points at its May meeting. CME’s FedWatch tool shows a 25 basis point upside probability of 66.5%, down from 72.9% on Tuesday.

The USD/MXN pair reached a fresh weekly low at 18.0187, before bouncing and stabilizing around current exchange rates. The dollar weakened, as shown by the Dollar Index (DXY), which fell 0.59% to 101.535, weighed down by falling US bond yields.

At one point, the 2-year US bond yield fell 14 basis points, but has so far erased some of those losses and is back above 4%, down 2 basis points.

Meanwhile, Federal Reserve officials released conflicting comments, led by Minnesota Fed Neil Kashkari, who commented on Wednesday that tightening monetary conditions and difficult credit conditions could have caused the Silicon Valley Bank (SVB) crisis. ). But he stressed: “We have to bring inflation down. … If we don’t get it, their job prospects will be really difficult.”

Later, Richmond Fed President Thomas Barkin reported that the US inflation report was as expected, but added that while inflation has peaked, “there is still some way to go.” In addition, he said that before the May meeting, the PCE and ICE would be crucial to assess their position at the next meeting.

At around 18:00 GMT, the Federal Reserve’s Open Market Committee (FOMC) will release the minutes of its latest monetary policy meeting. The Minutes are expected to show the discussions from the last meeting following the defaults of Silicon Valley Bank and Signature Bank.

USD/MXN Technical Analysis

USD/MXN is biased to the downside, although it faces solid support. For a bearish continuation, the USD/MXN pair needs to break 18.00, to pave the way for a retest of the year low at 17.8968. Otherwise, the EM currency could weaken and expose the 20-day EMA at 18.2533, which would be put to the test by buyers of USD/MXN. Break above, and USD/MXN could rally to the 50-day EMA at 18.4526.