USD/MXN holds under 21.00, near three-week lows

• The Mexican peso remains among the top weekly performers across the globe.
• US dollar mixed on Monday, between risk aversion and lower US yields.
• USD/MXN holds near the recent bottom, supported around 20.85.

The USD/MXN is rising marginally on Monday supported by a deterioration in market sentiment during the American session. Still it remains under 21.00 and near the three-week low it reached on Friday at 20.83.

The greenback is up across the board despite lower US yields. The Dow Jones is falling by 0.89% and the Nasdaq 0.78%. The slide in equity prices favored the demand from the dollar.

FOMC and Banxico at the same week

The key focus of the week will be on central bank. Their decisions are likely to impact on prices across all financial assets.

On Tuesday, the Federal Reserve will start its two-day meeting. “Fed officials are likely to strike a much more hawkish tone at this week's FOMC meeting than they did in November, although a major shift is now widely anticipated by markets participants”, mentioned analysts at TD Securities. Analysts expected an increase in the pace of tapering and some signs that interest rate might rise sooner than previously expected.

The Bank of Mexico will meet on Thursday. It is expected to hike the key interest rate 25 basis point to 5.25%; some analysts consider the possibility of a 50 bp hike. “November CPI rose 7.37% y/y, the highest since January 2001 and further above the 2-4% target range.  Swaps market is pricing in a peak policy rate of 7.25% by end-2022 and remaining there through 2023”, said BBH analysts.

Technical levels