USD/MXN struggles to break above the 19.00 zone

• USD/MXN is trading in a tight range below the critical 19.00 resistance.
• The markets’ mood is rather mixed, as S&P500 futures and US Treasury yields show a recovery.
• The Fed could announce two more 25 basis point rate hikes before pausing the monetary policy tightening program.

The USD/MXN pair is showing a balanced auction below the 19.00 round level resistance at the start of the European session. The asset is expected to overcome this immediate resistance as Federal Reserve (Fed) policymakers continually deliver aggressive comments on the terminal rate and keeping interest rates higher to tame stubborn inflation.

The markets mood is rather mixed as S&P 500 futures are showing a rally move after a three day losing streak and also 10 year US Treasury yields have extended their rally above 3.41%. The Dollar Index (DXY) has risen to around 101.80 after rebounding to around 101.60 on hawkish comments from Fed policymakers, which is acting as a cushion for the US dollar.

New York Fed President John Williams said, “With inflation still elevated and signs of continued supply-demand imbalances, it is clear that monetary policy still has more work to do to bring inflation down to our target. 2% on a sustained basis,” as reported by Reuters.

Although there are signs that inflation is easing, further monetary policy tightening is still needed to contain runaway inflation. Meanwhile, Reuters claims that Fed Chairman Jerome Powell will pause the tightening program for the remainder of 2023 after raising interest rates by 25 basis points (bps) over the next two meetings. of monetary policy.

For their part, investors in Mexican pesos will be attentive to the decision of the Bank of Mexico (Banxico) on interest rates, scheduled for February. Rabobank analysts expect the terminal rate to stand at 10.75% after a last rise of 25 basis points (bp) in February.