USD/MXN drops ahead of Powell and Co. decision

Sentiment shifted sour as the time closes to know the Fed’s decision. Most analysts expect a 25 basis points (bps) rate hike, and the “dot-plots” remain unchanged compared to December’s meeting. Three weeks ago, before the Silicon Valley Bank (SVB) crisis, which spread to another two US banks across Europe with Credit Suisse (CS), put central banks under heavy stress. However, once the dust settled, the European Central Banks (ECB) raised rates by 50 bps and removed any forward guidance.

Analysts at Deutsche Bank commented, “Fed will follow through with a 25bp hike today, and futures are pricing in a roughly 82% chance they’ll go ahead with one.” They added, “Before the SVB collapse, Chair Powell had said in congressional testimony that they were prepared to increase the pace of rate hikes, which led investors to price in a strong chance of a 50bps move.” Nevertheless, the scenario is different after two US banks collapse. Another one remains at the brisk of falling under the water, though 11 banks in the United States provided aid to contain the contagion.

Consequently, US Treasury bond yields continued their recovery after dropping a substantial amount of bps. The US 10-year Treasury bond yield sits at 3.615%, unchanged, while the 2-year bond is yielding 4.221%, gains five bps.

The US Dollar Index, which tracks the buck’s value vs. a basket of six currencies, remains firm at 103.195, unchanged.

Data-wise, the US economic docket will feature the US Fed monetary policy decision, followed by the Federal Reserve Chairman Jerome Powell press conference at around 18:30 GMT.

On the Mexican side, private consumption in Mexico increased by 0.5% in Q4 of 2022, compared to the previous quarter, with a revised increase of 0.3%. However, the year-on-year growth rate of private spending slowed to 4.5%, as opposed to the revised 6.4% rise in the preceding period.