USD/MXN moves on the downward trajectory near 17.1800, awaits FOMC meeting minutes

• USD/MXN extends losses as the Fed is expected to adopt a dovish stance.
• US Dollar fails to gain despite improved US bond yields.
• Banxico’s policy decision will be influenced by Mexico’s inflation context.

USD/MXN trades lower around 17.1800 during the European session on Monday, retracing the recent gains. Markets are biased toward the possibility that the Federal Reserve (Fed) could cut rates for the first half of 2024, leading to a weakening of the US Dollar (USD) over the previous week.

The US Dollar Index (DXY) trades lower around 103.60 despite improved US Treasury yields, with the yield on the 2-year Treasury coupon standing at 4.90% and the 10-year yield at 4.46%, by the press time.

Bank of America (BoA) has revised its forecasts, predicting higher Fed Funds Rates for an extended period. The updated forecasts indicate an increase in rates across the curve, with the projection of a 10-year US Treasury yield reaching 4.25% by the end of 2024.

Banxico, Mexico’s central bank, is anticipated to keep its interest rates steady at 11.25% for quite some time as part of its efforts to achieve a 3.0% inflation target by 2025. The decision will be influenced by Mexico’s inflation context, which eased to 4.26% year on year in October.

Governor Victoria Rodriguez Ceja hinted on Monday that rate cuts could be on the table for next year. Deputy Governor Jonathan Heath reinforced on Tuesday that monetary policy would persist in its restrictive stance.

The market’s attention on Tuesday will be on the FOMC minutes, providing insights into the Federal Reserve committee’s decision to maintain rates, along with Mexico’s Retail Sales on Wednesday.