MEXICAN PESO DROPS AS US TREASURY YIELDS RISE ON ROBUST US DATA

• Mexican Peso on defensive as USD/MXN is back above 17.00.
• Mexican economic growth estimated at 2.1% YoY in March, but market focus shifts to upcoming Retail Sales data.
• US Treasury yields increase following lower-than-expected unemployment rate and strong Philly Fed Manufacturing Survey.

The Mexican Peso depreciated against the US Dollar as sentiment shifted sour on Thursday. Treasury yields in the United States (US) are rising following the release of a subdued US jobs report. Market participants remain wary that the Federal Reserve will keep rates “higher for longer,” which would trigger flows toward the Greenback. Therefore, the USD/MXN trades at 17.06, gaining some 0.66%, and is about to refresh three-day highs.

Wall Street trades with losses amid a risk-averse scenario. Data-wise, the National Statistics Agency (INEGI) revealed that Mexico’s economy likely grew 2.1% YoY in March based on a preliminary estimate. Nevertheless, traders mainly ignored the report, as they remained focused on Mexico’s Retail Sales report due on April 19.

Across the border, the US Department of Labor revealed that the number of Americans filing for unemployment was lower than expected, which aligned with the previous reading and suggested that the labor market remains healthy. At the same time, the Philadelphia Fed Manufacturing Index for April crushed estimates.

On Tuesday, Federal Reserve Chair Jerome Powell said that recent data “lacked further progress on inflation this year,” pointing to the remarkable performance of the US economy. During those hawkish remarks, the swaps markets adjusted their bets from 75 to 50 bps of interest rate cuts by the US central bank toward the end of 2024.

Given the fundamental backdrop, US Treasury yields are climbing, with the 10-year benchmark note rate up four bps at 4.633%. The US Dollar Index (DXY), which measures the performance of the American currency against six others, climbs past the 106.00 threshold and clocks gains of 0.22%.