USD/MXN swings near weekly lows amid mixed signals from the Fed and easing of Mexican inflation

• USD/MXN hovers around 17.5684 as a lack of new economic catalysts and dovish comments from the Fed keep the pair in check.
• Despite strong US economic data, the odds of a rate hike in November remain at 43.6%, adding uncertainty to the trajectory of the USD/MXN.
• The reduction in Mexican inflation to 4.64% year-on-year in August provides some relief, but traders are attentive to upcoming economic indicators from the US and Mexico.

He Mexican Peso (MXN) regained some ground against US dollar (USD), although it remains close to its weekly lows, while the USD is trading lower, registering modest losses. The lack of an economic catalyst and a boost in risk appetite keep the USD/MXN pair oscillating around 17.5684 after hitting a daily low at 17.4380.

Mexican peso regains ground while US dollar weakens, but traders remain cautious ahead of crucial economic data next week

The dollar trades softer on Friday, as it heads to add weekly gains for the eighth consecutive week after hitting a six-month high of 105.057. Thus, the USD/MXN pair halted its recovery despite data from the United States (US) showing a strong economy as business activity remains strong. At the same time, due to the latest jobless claims data, the labor market is not as weak as the US Federal Reserve expected.

Against this background, operators are preparing for additional tightening by the Fed. Although interest rate probabilities rule out a rate hike in September, those for November remain at 43.6% for a rise of 25 basis points. This boosted high US bond yields, supporting the USD/MXN pair. However, appetite for US bonds keeps pressure on yields.

Aside from this, USD/MXN is reversing some of its earlier losses due to dovish comments from Fed officials. New York Fed President John Williams and Atlanta President Raphael Bostic are in among the more dovish Federal Reserve officials, with the first saying monetary policy is “in a good place.” In contrast, Dallas Fed President and 2023 voter Lorie Logan added that skipping a rate hike may be appropriate, but stressed that the Federal Funds Rate (FFR) should be at higher levels.

That said, investors trimmed some of their long USD/MXN positions after Mexico’s inflation slowed to its lowest level since March 2023, down to 4.64% year-on-year in August. The deputy governor of the Bank of Mexico, Jonathan Heath, reported that the slowdown in core inflation to 6.08% year-on-year was “good news”, while stressing that there is still a long way to go.

Next week, the US agenda will include data on inflation, retail sales, jobless claims, Industrial Production and consumer sentiment from the University of Michigan. In Mexico Industrial Production will be published.

USD/MXN Price Analysis: Technical Outlook

From a technical point of view, the USD/MXN recovery stalled around 17.5000/7000. However, buyers reclaimed the critical May 17 daily low of 17.4038, maintaining hope that the exchange rate will rise towards the psychological barrier of 18.0000. Above that level is the 200-day moving average (DMA) at 18.0112, which, once broken, would bring into play the key resistance zones of 18.4010 and 18.6074, the April 5 high and the April 24 high. March, respectively.