• Mexican Peso gains modestly as US Dollar weakens further despite pressure from rising US Treasury yields.
• Mexico's January trade deficit and potential Banxico rate cut speculation influence USD/MXN dynamics.
• Economic slowdown signs and CPI dip support Banxico's potential easing, hinting at upcoming volatility for the Peso.

Mexican Peso registers modest gains against the US Dollar as the latter remains weak, extending its losses to two straight days against a basket of six currencies, the so-called US Dollar Index (DXY). Nevertheless, a jump in US Treasury bond yields is capping the Peso’s advance, with the USD/MXN trading at 17.05, down 0.25%.

Mexico reported the Balance of Trade for January, which revealed the country posted a trade deficit of $302 million dollars, seasonally-adjusted, as announced by the National Statistics Agency (INEGI). The data failed to extend the USD/MXN losses amid speculation that the Bank of Mexico (Banxico) could ease monetary policy.

In an interview with El Economista, Pamela Diaz Loubet, BNP Paribas economist for Mexico, commented, “We maintain the forecast that they (Banxico) will apply a cut in March.” She said that in the latest minutes guidance for future actions, Banxico will surely explain that the March cut will be presented “to maintain flexibility and the gradual approach to cuts.”

The economic data in Mexico is expected to show an economic slowdown due to higher interest rates set by the Bank of Mexico (Banxico) at 11.25%. That, along with the latest report of the Consumer Price Index (CPI) dipping sharply for the first half of February, justifies the posture of three members of Banxico. The latest meeting minutes suggested that three policymakers are eyeing the first rate cut at the March meeting, which could put pressure on the Mexican Peso, opening the door for further upside on the USD/MXN exchange rate.

Across the border, US Durable Goods Orders plunged more than expected, while Home Prices reported by S&P/Case Shiller were mixed.