USD/MXN moves lower near 17.1800, awaiting FOMC meeting minutes

• USD/MXN extends losses as Fed expected to adopt dovish stance.
• The Dollar fails to advance despite the improvement in US bond yields.
• Banxico’s political decision will be influenced by the context of inflation in Mexico.

USD/MXN trades lower around 17.1800 during the European session on Monday, retracing recent gains. Markets are leaning towards the possibility that the Federal Reserve (Fed) could cut rates during the first half of 2024, leading to a weakening of the US Dollar (USD) over the past week.

The US Dollar Index DXY is trading lower around 103.60 despite improving US Treasury yields, with the 2-year Treasury coupon yield at 4.90% and the 10-year yield at 4.46% , at the time of writing.

Bank of America (BoA) has revised its forecasts, predicting a rise in the federal funds rate for an extended period. The updated forecasts indicate a rise in rates across the curve, with the 10-year US Treasury yield projected to reach 4.25% by the end of 2024.

Banxico, Mexico’s central bank, is expected to keep its interest rates stable at 11.25% for quite some time, as part of its efforts to reach a 3% inflation target by 2025. The decision will be influenced by the context of inflation in Mexico, which fell to 4.26% year-on-year in October.

Governor Victoria Rodríguez Ceja hinted Monday that there could be rate cuts next year. Lt. Gov. Jonathan Heath reinforced Tuesday that monetary policy would persist in his restrictive stance.

On Tuesday, market attention will focus on the FOMC minutes, which will provide information on the Federal Reserve committee’s decision to hold rates, along with Mexican retail sales on Wednesday.