- USD/MXN strengthens due to the release of encouraging US economic data on Tuesday.
- The Fed is expected to raise interest rates before the end of the year, which would strengthen the US dollar (USD).
- Traders will be attentive to the interest rate decisions that the Bank of Mexico (Banxico) will make on Thursday.
The USD/MXN pair attempts to extend its gains for the third day in a row, trading higher around 17.5580 at the start of the European session on Wednesday. The pair is experiencing bullish support due to risk aversion and improving US Treasury yields.
In addition, economic data from the United States reinforce the strength of the Dollar.
Tuesday’s release of US consumer confidence for September fell to 103.0, down from August’s reading of 108.7. For its part, construction permits improved to 1,541,000 in August, compared to the previous 1,443,000.
On the other hand, the monthly House Price Index for July rose to 0.8% versus market expectations of 0.5% from the previous rate of 0.4%.
On the other hand, the Federal Reserve (Fed) is expected to raise its interest rates before the end of the year, as the US economy demonstrates its resilience. This, in turn, drives up US Treasury yields, reinforcing the strength of the Dollar (USD).
At the time of writing, the DXY Dollar Index is hovering around the 106.30 region, the highest level since December. The yield on the 10-year US Treasury bond is below the highest level since October 2007, trading around 4.51%.
Additionally, traders are awaiting the US Durable Goods Orders report due out on Wednesday. The core Personal Consumption Expenditure (PCE) Price Index, the Fed’s preferred measure of consumer inflation, will be released on Friday. The annual rate is expected to reduce from 4.2% to 3.9%.
On Tuesday, Minnesota Fed President Neel Kashkari expressed his view that another rate hike is necessary, followed by the need to keep them at that level. He also mentioned the possibility of achieving a soft landing for the economy, which implies a gradual slowdown without triggering a recession.
Recently, several Federal Reserve officials have offered divergent perspectives on monetary policy. Some have argued for patience, while others, such as Fed Governor Michelle Bowman, have stressed the need for another interest rate hike.
Based on the latest “dot plots” presented in the September Summary of Economic Projections, it appears that the Fed is forecasting a 25 basis point (bp) rate hike by the end of the year. In addition, the Fed plans to keep rates above the 5% level throughout next year.
On the other hand, recent data from Mexico showed that August 12-month inflation increased by 4.64% compared to the previous rate of 4.79%, exceeding the expected rate of 4.61%. For its part, general inflation increased by 0.55%, above the 0.52% and 0.48% expected.
The President of Mexico, Andrés Manuel López Obrador, recently commented that the Bank of Mexico (Banxico) has had a good performance in reducing inflation rates. However, Obrador also suggested that the central bank should place greater emphasis on promoting economic development.
If the inflation rate continues to decline, Banxico could consider adjusting its monetary policy. These adjustments could have an impact on theMexican peso.
The USD/MXN pair depends on the dynamics of the Dollar due to the lack of economic data. However, traders are likely to closely monitor the trade balance, the unemployment rate and the Bank of Mexico’s (Banxico) decision on interest rates later this week.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
