USD/MXN falls on sentiment improvement

Global equities resumed to the upside due to easing concerns about the failure of three banks in the US. The US Bureau of Labor Statistics (BLS) revealed that US inflation in February was in line with estimates on annual readings. The Consumer Price Index (CPI) rose 6%, while the core CPI was 5.5%. On a monthly basis, CPI was 0.4%, aligned with the consensus, while core CPI edged up to 0.5%, above forecasts.

Last week, the US Federal Reserve (Fed) Chair Jerome Powell commented that the Federal Funds Rate (FFR) would peak higher than expected. Also, he stressed that solid incoming data would accelerate the pace of interest rate increases. But the recent turmoil in the US banking system keeps traders repricing a less hawkish Fed amidst fears that more institutions could fall under the water.

The CME FedWatch Tool shows Fed odds for a 25 bps rate hike lying at 86.4%, compared to last week’s 69.8% chance for a 50 bps rate hike.

That has triggered a reaction in the US fixed-income market. US Treasury bond yields are recovering, as shown by 2s and 10s, each gaining 35 and six basis points, respectively. The US Dollar Index (DXY), a measure of the buck’s value against a basket of six currencies, edges high 0.13%, at 103.754.

Nevertheless, the USD/MXN continued dropping amidst investors seeking return, as the interest rate differential between the US and Mexico favors the Mexican currency.