• USD/MXN drops beneath $18.50 on Fed’s decision to raise rates.
• Federal Reserve: Inflation remains high, and the labor market is tight.
• Fed officials expect rates to peak at around 5.10%.

The USD/MXN drops to fresh 7-days lows at 18.3777 following the US Federal Reserve’s (Fed) decision to raise rates as expected by 25 bps, in a perceived dovish hike. Fed officials’ removal of the phrase “ongoing increases” spurred US Dollar (USD) weakness; therefore, the USD/MXN fell. At the time of writing, the USD/MXN is trading volatile within the 18.35-55 range as Fed Chair Jerome Powell takes the stand.

Summary of the monetary policy statement and Fed Projections

On Wednesday, the Federal Reserve decided to raise rates by 25 bps and emphasized that inflation is elevated and that the labor market is tight. Fed policymakers acknowledged the banking crisis and said, “Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation.”

In the meantime, the so-called dot plot was almost unchanged, with most Fed officials expecting the Federal Funds Rate (FFR) to peak at around 5.10%. The Quantitative Tightening (QT) would continue, with the balance sheet reduction set to continue as planned.

Meanwhile, the US Federal Reserve Chair Jerome Powell began his Q&A. He said that Fed officials are not expecting rate cuts this year; it’s not their baseline expectation. He added that disinflation is happening and that the following monetary policy decisions would be live. Of late, Powell said that if the Fed needs to raise rates, they will do it.

USD/MXN Price action on Fed day

As Jerome Powell speaks, the USD/MXN dived to its daily low at 18.3776, before reversing its course. Upward moves could be capped at the 20-EMA at 18.5595. On the other hand, any dovish comments by Powell could send the USD/MXN diving toward the $18.00 mark.