USD/MXN hovers near 17.05 amid a stable US Dollar ahead of US Manufacturing PMI

• USD/MXN struggles to move into the positive territory on Friday.
• Jobless Rate increased to 2.9% YoY from the previous reading of 2.6%.
• Fed's first-rate cut could be delayed due to recent US GDP and PCE figures.

USD/MXN recovers its intraday losses and holds steady near 17.05 during the early European session on Friday, closely trading around the weekly low at 17.03 recorded on Thursday. The Mexican Peso (MXN) has gained traction against the US Dollar (USD), buoyed by positive labor market data released in the previous session for January.

The jobless Rate rose to 2.9% YoY from 2.6% prior, exceeding expectations of a 2.8% rise but maintaining a relatively tight labor market. While the seasonally adjusted rate stood at 2.8% in January. Furthermore, the Bank of Mexico (Banxico) will release January’s Fiscal Balance on Saturday. Banxico revised its economic growth projection for 2024 to 2.8% while maintaining the projection at 1.5% for 2025.

Deputy Governors Jonathan Heath and Omar Mejia advocated for a gradual approach to rate adjustments, emphasizing the importance of maintaining higher rates over an extended period. Additionally, Deputy Governor Irene Espinosa underscored the need for Banxico to consider both external and internal factors that impact inflation when making policy decisions.

The US Dollar Index (DXY) hovers near 104.10, with the improved US Treasury bond yields, which stand at 4.63% for the 2-year and 4.25% for the 10-year bonds at the time of publication. However, market expectations for the Federal Reserve's first-rate cut have been pushed back due to recent data, including Gross Domestic Product (GDP) figures and the US Personal Consumption Expenditures - Price Index from the United States (US), providing support for the US Dollar (USD).

According to the CME FedWatch Tool, the probability of rate cuts in March stands at 3.0%, while the likelihood of cuts in May and June is estimated at 23.1% and 52.2%, respectively. Investors are now awaiting the final US S&P Global Manufacturing PMI for February, scheduled for release on Friday.