The USD/MXN shows flashes of recovery and rallies more than 0.70% on sentiment deterioration, thus denting appetite for the emerging market currency, the Mexican Peso (MXN). The First Republic Bank, which took over the troubled Silicon Valley Bank (SVB), missed estimates and reignited March’s fears of a banking crisis. Therefore, the USD/MXN climbed and is trading at 18.1057.
USD/MXN sees rally on sentiment downturn as Banxico pauses tightening cycle amid easing inflation
Wall Street is set to finish the day with substantial losses. Reports that First Republic Bank witnessed greater-than-expected withdrawals in the first quarter turned the mood sour. Several Federal Reserve (Fed) Regional Banks released their Manufacturing and Services Indices, indicating that the slowdown in the US economy is persisting. Moreover, the Conference Board (CB) released the Consumer Confidence report for April, which was lower than the estimated 104 at 101.3. The report revealed that consumers are increasingly pessimistic about the economy and expect the labor market to weaken.
The USD/MXN reacted upwards once the North American session began, bouncing from daily lows at around 17.9504 and rising towards the daily high at 18.1444 before stabilizing around current exchange rates.
In the meantime, the greenback appreciated, as shown by the US Dollar Index (DXY) gaining 0.53$, at 101.942, despite US Treasury bond yields falling. The CME FedWatch Tool indicates that the odds for a 25 bps rate hike at the May meeting diminished from 84% in the early New York session to 76.6%.
In other data, US New Home Sales in March rose by 683K above estimates of 632K, a signal that easing mortgage rates is helping curb the housing market.
Due to the lack of economic data in the Mexican economic agenda, the latest inflation report showed that it slowed down to 6.24% in April, its lowest level since October 2021. Nevertheless, core inflation remained at 7.75% for the first half of April, suggesting that the Bank of Mexico (Banxico) could pause its tightening cycle.
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