• USD/MXN gains ground on market caution due to the escalated tension in the Middle East.
• Prime Minister Benjamin Netanyahu refused the ceasefire offer from Hamas.
• Banxico kept its benchmark policy rate at the record-high level of 11.25%.

USD/MXN extends its upward trend for the third consecutive day, trading around 17.15 during the European session on Friday. However, the USD/MXN pair gained ground on market caution due to the escalated tension in the Middle East. Israeli Prime Minister Benjamin Netanyahu's refusal of the ceasefire offer from Hamas added to the geopolitical uncertainty.

The US Dollar Index (DXY), which gauges the performance of the US Dollar against a basket of six major currencies, appears set to continue its recent upward trajectory for the second consecutive day. However, the decline in US bond yields might be exerting some downward pressure on the Greenback.

Moreover, positive data from the US job market bolstered the Greenback further. Initial Jobless Claims in the US dropped to 218K in the week ending February 2, down from the previous week's 227K and surpassing the estimated figure of 220K. Additionally, Continuing Jobless Claims also declined to 1.871M for the week ending January 26, beating market forecasts of 1.878M from the previous reading of 1.894M.

ING economists maintain a positive outlook on the Mexican Peso (MXN). However, the USD/MXN pair encountered a hurdle following the Bank of Mexico (Banxico) interest rate decision on Thursday. During its February meeting, Banxico unanimously opted to keep its benchmark policy rate at the record-high level of 11.25%.

In January, headline inflation accelerated to 4.88% annually, primarily due to a non-core component increase, while core inflation moderated to 4.76%. Additionally, market participants will be closely monitoring Industrial Output data scheduled for release on Friday.