MEXICAN PESO RALLIES AS SOFTER US INFLATION DATA WEIGHS ON US DOLLAR

• Mexican Peso recovers after two-day decline, buoyed by weaker-than-expected US CPI report.
• US CPI miss leads to cooling inflation, boosting prospects for Fed rate cuts.
• US Treasury yields drop, DXY falls 0.60% to 104.39, weakening Greenback.
• Minneapolis Fed's Kashkari questions monetary policy restrictiveness amid unexpected consumer spending levels.

The Mexican Peso erased two days of losses and rallies against the US Dollar on Wednesday after the latter continued to weaken due to a softer-than-expected US inflation report.

Consequently, expectations for a Federal Reserve (Fed) rate cut increased, exerting pressure on the American currency. At the time of writing, the USD/MXN trades at 16.65, dropping to four-week lows.

Mexico’s economic docket remains absent and will not resume until next week. Across the border, the US Bureau of Labor Statistics (BLS) revealed that the Consumer Price Index (CPI) was below estimates and the prior month’s data. Underlying inflation showed signs of cooling, which means that easing policy in the United States is back on the table.

US Treasury bond yields are plunging across the short and long end of the curve, a headwind for the Greenback. The US Dollar Index (DXY) fell 0.60% to 104.39.

In the meantime, Minneapolis Fed President Neel Kashkari hit the wires. He said that Americans have been spending “more than I would have expected,” adding that the big question is “how restrictive policy currently is”.

On Tuesday, Fed Chair Jerome Powell revealed that inflation is moving lower, though he added that he’s not as confident as he was before about inflation’s path to 2%. Powell noted that restrictive monetary policy could take longer than expected to do its work and bring inflation to the Fed’s goal.