USD/MXN moves sideways near 16.70 on expectations that the Fed will keep rates high

• USD/MXN could receive upside support following hawkish comments from Fed members.
• The Mexican peso could benefit from favorable risk sentiment.
• Lower US Treasury yields could weaken the US Dollar.

He USD/MXN recovers recent losses and struggles to rise close to the 16.70 region during the European session on Tuesday. The US Dollar (USD) gains ground, boosted by hawkish comments from US Federal Reserve (Fed) officials. Fed members suggest delaying interest rate cuts have reinforced the idea of ​​keeping interest rates high for longer.

The expectations of the president of the Atlanta Fed, Raphael Bostic's single rate cut this year reflects caution over premature reductions that could cause disruption. In contrast, Chicago Fed President Austan Goolsbee stressed the need for more evidence of declining inflation before advocating such rate adjustments.

The USD/MXN pair experienced downward pressure amid pro-risk sentiment, while the Mexican Peso (MXN) strengthened despite the recent interest rate cut by the Bank of Mexico (Banxico). The governor of Banxico, Victoria Rodríguez Ceja, commented that the initial reduction in rates does not mean the end of the battle against inflation. She underscored the central bank's caution, indicating that adjustments to key benchmark rates would be gradual and based on upcoming data.

Banxico lowered interest rates due to significant declines in both inflation and growth over the last year.