USD/MXN hovers near the two-week high at 17.5580, awaits Core PCE, Banxico decision

• USD/MXN strengthens due to risk aversion.
• Fed is expected to raise interest rates through the end of the year; strengthening the US Dollar (USD).
• Traders will watch interest rate decisions by the Bank of Mexico (Banxico) on Thursday.

USD/MXN attempts to extend gains on the third successive day, trading higher around 17.5580 during the Asian session on Wednesday. The pair experiences upward support due to the risk aversion and improved US Treasury yields.

However, moderate economic data from the United States (US) could bolster the prevailing strength in the US Dollar (USD).

US Consumer Confidence released on Tuesday for September decreased to 103.0 from the reading of 108.7 in August. Building Permits improved to 1.541M in August from 1.443M prior, falling short of the market expectation of 1.543M.

Moreover, the House Price Index month-month for July climbed to 0.8% compared to the market expectations of 0.5% from the previous rate of 0.4%.

Additionally, the Federal Reserve (Fed) is expected to raise policy rates through the end of the year as the US economy demonstrates resilience. This, in turn, boosts the US Treasury yields, which reinforces the strength of the US Dollar (USD).

The US Dollar Index (DXY) hovers around 106.30 by the press time, the highest level since December. The yield on the 10-year US Treasury note hovers below the highest level since October 2007, trading around 4.51% at the time of writing.

Furthermore, traders await the US Durable Goods Orders report to be released on Wednesday. Core Personal Consumption Expenditure (PCE) Price Index, the Fed's preferred measure of consumer inflation, is due on Friday. The annual rate is anticipated to reduce from 4.2% to 3.9%.

On Tuesday, Minnesota Fed President Neel Kashkari expressed the view that another rate hike is necessary, followed by the need to maintain rates at that level. He also mentioned the possibility of achieving a soft landing for the economy, which implies a gradual slowdown without causing a recession.

Recently, various Federal Reserve officials have offered differing perspectives on monetary policy. Some have advocated for patience, while others, such as Fed Governor Bowman, have emphasized the need for another interest rate hike.

Considering the latest "dot plots" presented in the September Summary of Economic Projections (SEP), it appears that the Fed is projecting a 25 basis point (bps) rate hike toward the end of the year. Furthermore, the Fed anticipates keeping rates above the 5% threshold throughout the following year.

On the other side, the recent data from Mexico showed that 12-month Inflation for August increased by 4.64% compared to the previous rate of 4.79%, surpassing the expected 4.61% rate. While Headline Inflation rose by 0.55%, higher than the expected 0.52% and 0.48%.

Mexico's President, Andres Manuel Lopez Obrador, recently commented that the Bank of Mexico (Banxico) has been performing well as inflation rates decrease. However, Obrador also suggested that the central bank should place greater emphasis on promoting economic development.

If the rate of inflation continues to ease, Banxico may consider adjusting its monetary policy. Such adjustments could have an impact on the Mexican Peso.

The USD/MXN pair is dependent on the Greenback’s dynamics due to the lack of economic data. However, traders will likely monitor the Balance of Trade, Unemployment Rate, and the Bank of Mexico (Banxico) interest rate decision later in the week.