During the early European session on Friday, the USD/MXN pair recovered from intraday losses, stabilizing near 17.05 and closely mirroring the weekly low at 17.03 set on Thursday. The Mexican Peso (MXN) has demonstrated strength against the US Dollar (USD), propelled by optimistic labor market data released in the previous session for January.
The year-on-year jobless rate increased to 2.9%, surpassing the previous figure of 2.6%, and slightly exceeding expectations for a 2.8% rise. Despite the uptick, the labor market maintained relative tightness, with the seasonally adjusted rate holding steady at 2.8% in January. The upcoming release of January’s Fiscal Balance by the Bank of Mexico (Banxico) adds further anticipation to the currency market.
Banxico revised its economic growth projection for 2024 to 2.8%, while maintaining a projection of 1.5% for 2025. The Deputy Governors, Jonathan Heath and Omar Mejia, advocated for a gradual approach to rate adjustments, emphasizing the importance of sustaining higher rates over an extended period. Deputy Governor Irene Espinosa underscored the need for Banxico to consider both external and internal factors affecting inflation in their policy decisions.
In the broader context, the US Dollar Index (DXY) lingers near 104.10, benefiting from improved US Treasury bond yields, standing at 4.63% for the 2-year and 4.25% for the 10-year bonds at the time of this report. Recent data, including Gross Domestic Product (GDP) figures and the US Personal Consumption Expenditures – Price Index, has led to a postponement of market expectations for the Federal Reserve’s first-rate cut.
The CME FedWatch Tool indicates a low probability of rate cuts in March at 3.0%, with expectations for cuts in May and June estimated at 23.1% and 52.2%, respectively. Investors are eagerly anticipating the final release of the US S&P Global Manufacturing PMI for February, scheduled for later on Friday, to glean insights into the state of the US manufacturing sector.
