USD/MXN holds firm around $18.60 as investors prepare for FOMC decision

• USD/MXN posts minimal losses as traders brace for Fed decision.
• Most analysts estimate a 25 basis point rate hike by the Federal Reserve.
• The rise in the yields of the United States Treasury bonds limited the fall of the USD/MXN below $18.50.

He USD/MXN extended its losses to three straight days and fell 0.03%, or 51 points, on Wednesday. Wall Street is operating with minimal losses awaiting the monetary policy decision of the United States Federal Reserve (Fed). At the time of writing, the USD/MXN pair is trading at 18.5909 after reaching a high of 18.6611.

USD/MXN falls ahead of Powell & Co. decision

Sentiment has turned sour as the time for the Fed’s decision approaches. Most analysts expect a 25 basis point (bp) rate hike, and “dot charts” remain unchanged at compared to the December meeting. Three weeks ago, before the Silicon Valley Bank (SVB) crisis, which spread to two other US banks in Europe with Credit Suisse (CS), central banks were under severe stress. However, once the dust settled, the ECB raised rates by 50 basis points and removed any forward guidance.

Deutsche Bank analysts commented: “The Fed will raise 25 basis points today, and futures call for an 82% chance.” They added: “Before the collapse of the SVB, Chairman Powell had said in congressional testimony that they were prepared to increase the pace of rate hikesleading investors to price in a strong probability of a 50bps move.” However, the scenario is different after the failure of two US banks. Another remains on the verge of going under the waters, although 11 US banks The United States provided assistance to contain the contagion.”

Consequently, US Treasury yields continued their rally after falling a substantial amount of basis points. The 10-year US Treasury yield stands at 3.615%, unchanged, while the 2-year yield trades at 4.221%, a gain of 5bp.

The Dollar Index, which measures the value of the dollar against a basket of six currencies, is holding firm at 103.195, unchanged.

In terms of data, the US economic agenda will feature the Fed’s monetary policy decision, followed by Federal Reserve Chairman Jerome Powell’s press conference at around 18:30 GMT.

On the Mexican side, private consumption in Mexico increased by 0.5% in the fourth quarter of 2022, compared to the previous quarter, with a revised increase of 0.3%. However, the annual growth rate of private spending slowed to 4.5%, from a revised rise of 6.4% in the previous period.

USD/MXN Technical Analysis

After dipping below the 100-day EMA at 18.6737, the USD/MXN decline deepened towards the $18.50 area. But the decline was capped by the 20-day EMA at 18.5526, although the price action hit lows around 18.5113. With the imminent Fed decision, the price is likely to remain sideways, pending Jerome Powell’s speech and Q&A from him.

If the USD/MXN breaks above 18.6611, it will pave the way towards the 100 day EMA, followed by the March 21 high at 18.8769. Conversely, USD/MXN would plunge further if the pair falls below $18.50.