USD/MXN Continues Winning Streak Amidst Risk Aversion

During the European session on Wednesday, USD/MXN extended its winning streak that commenced on Thursday, trading higher around 17.03. The Mexican peso (MXN) faced depreciation as the U.S. dollar (USD) strengthened amid growing risk aversion in the market. Investors reevaluated the likelihood of a Federal Reserve rate cut in the first quarter of 2024, prompting a renewed interest in the dollar.

Recent data from Mexico revealed that the fiscal deficit surged to $87.78 billion in November, marking a significant increase from $29.58 billion in October. Despite this, the unemployment rate remained stable at 2.7%, slightly below market expectations of 2.6%. However, the seasonally adjusted unemployment rate experienced a marginal uptick from 2.6% to 2.8%, attributed to the impact of the Bank of Mexico (Banxico) maintaining higher policy rates. The dovish data may offer some relief to Banxico, potentially easing immediate pressure to implement further monetary policy tightening.

As U.S. Treasury yields rise, the U.S. dollar index (DXY) seems poised to sustain its winning streak for the fourth consecutive trading day, hovering around 102.10 at the time of reporting. The 2-year and 10-year U.S. Treasury yields were 4.34% and 4.34%, respectively. The U.S. S&P Global Manufacturing Purchasing Managers Index (PMI) came in below expectations. Looking ahead, investors are anticipated to closely monitor Wednesday’s U.S. data, including the December ISM Manufacturing Purchasing Managers’ Index, November JOLTS job vacancies, and the Federal Open Market Committee (FOMC) meeting minutes.

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