Below the crucial resistance level of 19.00, USD/MXN bounces within a constrained range. The S&P500 futures and US Treasury rates show signs of recovery, creating confusion in the market’s mindset. Before stopping its campaign of tightening policy, the Fed may announce two further rate increases of 25 basis points.

In the early European session, the USD/MXN pair displayed a balanced auction below the round-level resistance of 19.00. As Federal Reserve (Fed) officials consistently provide aggressive commentary for the terminal rate and sustain higher interest rates to rein in the tenacious inflation, USD/MXN is anticipated to transcend the immediate obstacle.

The 10-year US Treasury rates have extended their rebound over 3.41%, and the S&P500 futures suggest a recovery after a three-day losing streak. After recovering to around 101.60, the US Dollar Index (DXY) has risen to 101.80. Thanks to the Fed officials’ hawkish remarks supporting the US dollar.

According to Reuters, John Williams, the president of the New York Fed Bank, said that “With inflation remains high and evidence of continuing supply-demand imbalances, it is obvious that monetary policy still has more work to do to bring inflation down to our 2% objective on a sustained basis.”

More policy tightening is still required to hold down soaring inflation, despite indications of inflation easing. According to Reuters, Fed chair Jerome Powell will reportedly halt the program of policy tightening for the remainder of CY2023 after raising interest rates by 25 basis points (bps) at the following two monetary policy meetings.

Investors in the Mexican Peso will undoubtedly be watching the interest rate decision made by the Banco de México in February. After a last 25 basis point (bps) increase in February, Rabobank analysts predict that the terminal rate will be 10.75%.