USD/MXN rises thanks to the Fed’s hawkish stance

• USD/MXN rises to 17.1637, gaining 0.43% on the day, driven by the Fed’s hawkish line and upward revisions to future interest rates.
• Mixed US economic data contrasts with strong consumer spending in Mexico, but the Dollar maintains its bullish momentum.
• The pair’s path is influenced by multi-year highs in US Treasury bond yields and strong labor market conditions in the US.

The Dollar recovered against the Mexican Peso on Thursday, boosted by the hawkish line of the United States Federal Reserve. Even though economic data from Mexico showed that consumer spending remains strong despite rising interest rates, the pair advances. The USD/MXN pair is trading at 17.1637, rising 0.43% more, after registering a low of 17.0363.

USD/MXN rises 0.43% while the Fed is very aggressive and foresees rates above 5% in 2024

On Wednesday, the US central bank decided to keep rates at their current level, while updating its economic forecasts. The monetary policy statement recognized the strength of the labor market, the tightening of credit conditions and the expansion of the economy. They stressed that “Inflation remains high” because the last two inflation readings registered a rebound.

However, most market participants were looking ahead to the rest of the year and future projections as the Fed revealed its Summary of Economic Projections (SEP). Policymakers are forecasting a further rate hike in 2023, while also revising the federal funds rate (FFR) for 2024, with the median rate seen at 5.1%, up from 4.6%.

This has been the main driver of price developments since yesterday. USD/MXN extended gains, while US Treasury yields along the short and middle end of the curve hit multi-year highs, a tailwind for the US Dollar (USD) . The US Dollar Index (DXY), an indicator of the value of the Dollar against a basket of peers, remains at 105.39, almost sideways, following the Fed’s reaction.

Recently released on the US economic agenda was last week’s initial jobless claims, which stood at 201,000, exceeding estimates of 225,000, reflecting the strength of the labor market. However, the Philadelphia Fed Manufacturing Index for September fell significantly to -13.5, well below the expected -0.5. US existing home sales also failed to meet expectations, falling -0.7% month-on-month, while a 1.5% expansion was forecast.

On the other side of the border, the National Institute of Statistics, Geography and Informatics (INEGI) revealed that Mexican retail sales stood at 0.2% month-on-month in June, in line with estimates, and at 5.1% year-on-year, exceeding estimates. forecasts of 4.9%.

USD/MXN Price Analysis: Technical Outlook

Following the Fed’s decision, USD/MXN broke through the 17.00 area before rebounding strongly towards the 17.10 area. Since then, the pair fluctuated around 17.0500/17.1000 and recovered, reclaiming the 20-day moving average (DMA) at 17.1402, with an eye on the 100-DMA at 17.1941. Should it achieve a daily close above that level, the exotic pair could test the September 7 daily high at 17.7074 before challenging 18.0000. On the downside, a drop below the 20-DMA could exacerbate a decline towards the psychological level of 17.0000.