The USD/MXN pair is making efforts to recover from recent losses, hovering near 16.91 during the European session on Thursday. The challenges faced by the pair are attributed to a weakened US Dollar (USD), influenced by the potential for rate cuts by the Federal Reserve (Fed) in the first quarter of 2024.
Rate Cut Expectations: The CME Fedwatch tool indicates that markets are pricing in a probability of over 88% for a rate cut in March, with full pricing for a rate cut in May. This underscores investor expectations of potential monetary policy easing by the Fed.
US Treasury Yields: The decline in US Treasury yields has contributed to the downward pressure on the USD. However, the 2-year and 10-year yields attempt to stabilize, standing at 4.26% and 3.81%, respectively.
Softer US Core PCE: Last week’s softer US Core PCE inflation data adds to the belief that the Fed may consider easing its monetary stance to address economic conditions. This indicator is crucial in the Fed’s assessment of inflation trends and overall economic health.
Upcoming Data: Investors are closely monitoring Thursday’s releases for additional insights into the labor market and the real estate sector. US Initial Jobless Claims for the week ending on December 22 are expected to slightly increase to 210K from the previous 205K. Pending Home Sales could rise to 1.0%, rebounding from the previous decline of 1.5%.
Mexico’s Economic Indicators: On Mexico’s side, the Jobless Rate for November, released by the National Institute of Statistics and Geography of Mexico (INEGI), is expected to show a reduction to 2.6% from the previous 2.7%. The Fiscal Balance for November is due to be released on Saturday.
In summary, the USD/MXN pair faces headwinds due to a weakened US Dollar and expectations of Fed rate cuts. Ongoing economic indicators and upcoming data releases will likely influence the pair’s direction as investors closely watch developments in both the US and Mexican economies.