• USD/MXN gains ground as the US Dollar appreciates higher US yields.
• The upbeat US CPI has tempered expectations for immediate interest rate cuts by the US Fed.
• Banxico members indicated avoiding premature interest rate cuts.

USD/MXN breaks its losing streak that commenced on February 29, attributed to the strengthened US Dollar (USD). The pair climbs to approximately 16.70 during Thursday's European session. Traders are eagerly awaiting the release of the US Core Producer Price Index (PPI) and Retail Sales data later today.

The US Dollar Index (DXY) appreciates to nearly 102.90, with 2-year and 10-year yields on US Treasury bonds standing at 4.64% and 4.20%, respectively, at press time. The upbeat US Consumer Price Index (CPI) has dampened expectations for immediate interest rate cuts by the Federal Reserve (Fed). Nevertheless, market participants maintain their bets on rate reductions in June, with a probability of 67.2%, as reported by the CME FedWatch Tool.

The Mexican peso has garnered upward momentum, reaching its highest level since November 2015. This trend can be attributed to the hawkish sentiment surrounding the Bank of Mexico (Banxico), which is inclined to prolong its restrictive monetary policy. Banxico's policymakers have acknowledged the progress made in controlling inflation in their quarterly report.

However, Banxico officials have emphasized the importance of avoiding premature interest rate cuts. Governor Victoria Rodriguez Ceja has advocated for a gradual approach to adjustments, while Deputy Governor Jonathan Heath has cautioned against the risks associated with premature rate cuts.

In January, Mexico’s Industrial Output (YoY) witnessed a significant surge, contrasting with the previous flat reading. Additionally, on a monthly basis, there was an increase as anticipated, reversing the previous decline. Despite the annual inflation rate decreasing from a seven-month high in January, Core Inflation experienced a higher increase compared to the previous reading. The upcoming policy meeting of the Bank of Mexico (Banxico), is scheduled for March 21, which will likely provide insights into the central bank's approach towards monetary policy stance.