USD/MXN firm at around $18.60 as investors prepared for the FOMC’s decision

• USD/MXN registers minimal losses, with traders bracing for the Fed’s decision.
• Most analysts estimate a 25 bps rate hike by the Federal Reserve.
• US Treasury bond yields rising, capped the USD/MXN fall below the $18.50 mark.

USD/MXN extended its losses to three straight days and tumbled 0.03% or 51 pips on Wednesday. Wall Street trades with minimal losses ahead of the US Federal Reserve’s (Fed) monetary policy decision. At the time of writing, the USD/MXN is trading at 18.5909 after hitting a high of 18.6611.

USD/MXN drops ahead of Powell and Co. decision

Sentiment shifted sour as the time closes to know the Fed’s decision. Most analysts expect a 25 basis points (bps) rate hike, and the “dot-plots” remain unchanged compared to December’s meeting. Three weeks ago, before the Silicon Valley Bank (SVB) crisis, which spread to another two US banks across Europe with Credit Suisse (CS), put central banks under heavy stress. However, once the dust settled, the European Central Banks (ECB) raised rates by 50 bps and removed any forward guidance.

Analysts at Deutsche Bank commented, “Fed will follow through with a +25bp hike today, and futures are pricing in a roughly 82% chance they’ll go ahead with one.” They added, “Before the SVB collapse, Chair Powell had said in congressional testimony that they were prepared to increase the pace of rate hikes, which led investors to price in a strong chance of a 50bps move.” Nevertheless, the scenario is different after two US banks collapse. Another one remains at the brisk of falling under the water, though 11 banks in the United States provided aid to contain the contagion.

Consequently, US Treasury bond yields continued their recovery after dropping a substantial amount of bps. The US 10-year Treasury bond yield sits at 3.615%, unchanged, while the 2-year bond is yielding 4.221%, gains five bps.

The US Dollar Index, which tracks the buck’s value vs. a basket of six currencies, remains firm at 103.195, unchanged.

Data-wise, the US economic docket will feature the US Fed monetary policy decision, followed by the Federal Reserve Chairman Jerome Powell press conference at around 18:30 GMT.

On the Mexican side, private consumption in Mexico increased by 0.5% in Q4 of 2022, compared to the previous quarter, with a revised increase of 0.3%. However, the year-on-year growth rate of private spending slowed to 4.5%, as opposed to the revised 6.4% rise in the preceding period.

USD/MXN Technical analysis

After falling below the 100-day, Exponential Moving Average (EMA) at 18.6737 exacerbated the USD/MXN fall toward the $18.50 area. But the fall was capped by the 20-day EMA at 18.5526, though price action touched a low of around 18.5113. With the Fed’s decision looming, price action would likely remain sideways, awaiting Jerome Powell’s speech and Q&A.

If the USD/MXN breaks above 18.6611, that will pave the way toward the 100-day EMA, followed by the March 21 high at 18.8769. Conversely, the USD/MXN would collapse further if the pair dives below $18.50.