- Tuesday, 19 September 2023 | 3:39 GMT
- USD/MXN trades sideways as the investors turn cautious ahead of the Fed decision.
- US Dollar (USD) could experience upward support on the likelihood of a 25 basis points interest rate hike by the Fed in November or December meetings.
- Investors await Mexico’s Retail Sales and Inflation data, seeking clues on the future interest rate trajectory.
The USD/MXN currency pair is displaying a sideways movement, hovering around the 17.1350 mark during the Asian session on Tuesday. This comes as it endeavors to sustain the downtrend following gains observed in the previous day. However, there is a sense of caution prevailing among investors in anticipation of the upcoming policy decision from the US Federal Reserve (Fed), and this cautious stance is exerting pressure on the Mexican Peso (MXN).
The US Dollar (USD) is currently experiencing some downward pressure, primarily because the Fed is widely expected to maintain its existing interest rates in the forthcoming meeting scheduled for Wednesday. Nonetheless, investors remain watchful due to the potential for a 25 basis points interest rate hike by the conclusion of 2023. This expectation is rooted in the backdrop of robust economic data emerging from the United States (US).
Traders are taking into account the possibility that the Federal Reserve (Fed) may opt to maintain elevated interest rates for an extended period, a scenario that could lend support to the US Dollar (USD). They are closely monitoring the central bank’s statements for any hints or insights into the potential future path of interest rates.
Currently, the US Dollar Index (DXY) is striving to put an end to its two-day losing streak, as it trades higher around the 105.10 mark. However, US Treasury yields are grappling with recovery after experiencing losses on Monday, with the yield on the US 10-year bond standing at 4.30% at the time of this writing. These lower yields are exerting downward pressure on the strength of the Greenback.
On the flip side, the Mexican Peso (MXN) has been influenced by heightened risk aversion, partly due to the rebound in oil prices. This has raised concerns that central banks may opt to maintain their cautious monetary policies for an extended duration or even contemplate further tightening.
Furthermore, recent macroeconomic data released on Monday revealed that Mexico’s Private Spending (Year-over-Year) recorded a growth rate of 4.3% in Q2, which was below the previous reading of 4.8%. Additionally, quarter-over-quarter figures showed a growth rate of 1.0%, a decline from the previous rate of 2.2%.
Attention is now turning towards Thursday’s release of Retail Sales data for July and Friday’s release of inflation figures for the first half of September. These releases could provide fresh insights into the prospective direction of the Bank of Mexico’s interest rates.
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