• Fresh US data shows a slowdown in inflation.
• Banxico is expected to hike rates by 75 basis points on Thursday.
• USD/MXN falls for the fourth consecutive day.

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

Economic data in the US shows inflation slowed down in July. The Consumer Price Index remained unchanged while the Produce Price Index dropped by 0.5% according to data released on Thursday.

The decline in inflation eased expectations about further aggressive tightening from the Federal Reserve. Still, market participants see a 50 basis points rate hike at the next meeting in September.

The US dollar remains under pressure. The greenback tumbled on Wednesday and so far on Thursday is holding onto those losses, unable to recover ground on a sustained basis, even as US yields soar. The US 10-year climbed from 2.75% to 2.84%, the 2-year rose to 3.20% and the 30-year to 3.11%.

Emerging market currencies in general are rising against the US dollar supported also by the improvement in risk sentiment. The Dow Jones is up by 0.47% and the S&P by 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 key rate from 7.75% to 8.50% as inflation shows no signs of a slowdown. The CPI rose in July to 8.15%, the highest annual rate since December 2002, well above Banxico’s 2-4% target. “The swaps market is pricing in 175 bp of further tightening over the next 6 months that would see the policy rate peak near 9.50% but we see some upside risks”, said analysts at Brown Brothers Harriman.

Technical levels