• USD/MXN continues its bullish streak despite dovish sentiment towards the Federal Reserve.
• The appreciation of the US dollar may be circumscribed due to falling yields on US Treasury bonds.
• MXN may limit its decline as mid-July inflation data may prevent Banxico from easing policy.

The USD/MXN pair continued to gain value for the fifth consecutive session, trading around 18.50 during European hours on Monday. The USD/MXN pair gained as the US dollar recovered losses during the day. However, a fall in US Treasury yields could weaken the US dollar, limiting the pair’s gains.

The U.S. Dollar Index (DXY), which measures the value of the U.S. dollar against six other major currencies, posted petite gains at around 104.40, with U.S. Treasury yields at 4.37% and 4.17% respectively at the time of writing.

In addition, signs of lower inflation and easing labor market conditions in the United States (US) have fueled expectations for three interest rate cuts this year by the Federal Reserve (Fed), starting in September. This has put pressure on the US dollar.

The U.S. Consumer Expenditures (PCE) Price Index on Friday pointed to a moderate boost in inflation in June and provided further signs of easing price pressures. The U.S. PCE Price Index rose 2.5% year over year in June, down slightly from 2.6% in May, meeting market expectations. The PCE Price Index rose 0.1% month over month after being unchanged in May.

In Mexico, inflation data in mid-July could discourage the Bank of Mexico (Banxico) from easing policy because of the risk of second-round effects that Goldman Sachs economists say could spill over into underlying inflation components.

Additionally, Citi Research analysts now estimate that annual inflation will end at 4.30%, up from the previous forecast of 4.20%, and core inflation is expected to reach 4.0% in 2024. Mexico’s economic growth is forecast to tardy, with an expected growth rate of 1.9%, up from 2.0% in the previous survey.