USD/MXN below 20.00, at six-week lows after Banxico

• New data from the United States shows a slowdown in inflation.
• Banxico is expected to raise rates by 75 basis points on Thursday.
• The USD/MXN falls for the fourth consecutive day.

The USD/MXN marked a new monthly low on Thursday at 19.90. It remains near the bottom, under pressure ahead of the Banxico decision and amid a weaker US dollar.

US economic data shows that inflation slowed in July. The consumer price index was unchanged, while the commodity price index was down 0.5%, according to data released on Thursday.

The decline in inflation reduced expectations of further tightening by the Federal Reserve. Still, market participants see a 50 basis point rate hike at the next meeting in September.

The US dollar remains under pressure. The USD fell on Wednesday and so far on Thursday is hanging on to those losses, unable to make up ground on a sustained basis, even as US yields soar. The 10-year US bond yield rose from 2.75% to 2.84%, the 2-year rose to 3.20% and the 30-year yield to 3.11%.

Emerging market currencies are generally rising against the US dollar, also supported by improving risk sentiment. The Dow Jones rose 0.47% and the S&P 0.37%, adding to Wednesday’s strong gains.

The Bank of Mexico will announce its decision in a few hours. The central bank is expected to raise the base interest rate from 7.75% to 8.50% as inflation shows no signs of slowing down. The IPC rose in July to 8.15%, the highest annual rate since December 2002, well above Banxico’s 2-4% target. “The swap market sees a 175 basis point tightening over the next six months, which would take the policy rate to a high of 9.50%, but we see some upside risks,” say analysts at Brown Brothers Harriman. .

Technical levels