- USD/MXN falls to 14-day lows at 19.76.
- The US dollar moderates after the strong rally registered with Trump’s victory.
- Mexico’s inflation rises to 4.76% annually in October.
The US Dollar reached a 27-month high of 20.80 yesterday, but this Thursday it lost all the ground it gained and fell from a daily high of 20.20 to a new two-week low of 19.76. At the time of writing, USD/MXN is trading above 19.85, losing 1.17% daily.
The US dollar loses strength while waiting for the Fed
The US Dollar Index (DXY) soared to 105.45 on Wednesday, its highest level in four months, boosted by Donald Trump’s resounding victory in the US presidential election. A day later, the effect has softened, with the DXY falling below 105.00, moving around 104.40, where it has fallen 0.73% so far this day.
USD/MXN operators will be closely monitoring the monetary policy announcement from the United States Federal Reserve, which is expected to cut its interest rate by 25 basis points, to 4.75%. Interest will also be in the appearance of Jerome Powell, president of the Fed, who could give clues to the path the entity will follow now that Trump will be the next president of the United States.
Read: Federal Reserve to make second consecutive interest rate cut as markets assess Trump’s return
Mexico’s inflation rises, the Mexican peso appreciates it
Mexico’s Consumer Price Index (CPI) has risen to 4.76% annually in October from 4.58% in September, as published by the National Institute of Statistics and Geography (INEGI). The figure has slightly exceeded market expectations, which expected an increase to 4.72%.
Monthly inflation has increased by 0.55%, exceeding the previous 0.05% and the expected 0.51%. This is its biggest rise in three months.
Finally, the underlying CPI has increased by 0.28% monthly, unchanged compared to the previous month, and below the estimated 0.33%. The annual rate stood at 3.80% compared to 3.91% in September.
This data has favored the Mexican peso, as persistently high inflation could cause Banxico to question the pace of its interest rate cuts at its next meeting.
USD/MXN Price Levels
The Relative Strength Index (RSI) on the hourly chart points to further declines in the coming hours. The first support appears at 19.75, the minimum of October 24. Below, the pair could fall to 19.13, where the 100-period moving average is on the one-day chart. Further down, the 7:00 p.m. zone will act as a retaining wall.
On the upside, USD/MXN needs to regain the 20.00 level in order to try to reach the resistance zone located at the 24-month high at 20.80. Above, the main barrier is in the region of 21.00.
The US Dollar FAQs
The United States Dollar (USD) is the official currency of the United States of America, and the “de facto” currency of a significant number of other countries where it is in circulation alongside local banknotes. According to 2022 data, it is the most traded currency in the world, with more than 88% of all global currency exchange operations, equivalent to an average of $6.6 trillion in daily transactions. After World War II, the USD took over from the pound sterling as the world’s reserve currency.
The single most important factor influencing the value of the US Dollar is monetary policy, which is determined by the Federal Reserve (Fed). The Fed has two mandates: achieve price stability (control inflation) and promote full employment. Your main tool to achieve these two objectives is to adjust interest rates. When prices rise too quickly and inflation exceeds the 2% target set by the Fed, the Fed raises rates, which favors the price of the dollar. When Inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates, which weighs on the Dollar.
In extreme situations, the Federal Reserve can also print more dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit into a clogged financial system. This is an unconventional policy measure used when credit has dried up because banks do not lend to each other (for fear of counterparty default). It is a last resort when a simple lowering of interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy US government bonds, primarily from financial institutions. QE usually leads to a weakening of the US Dollar.
Quantitative tightening (QT) is the reverse process by which the Federal Reserve stops purchasing bonds from financial institutions and does not reinvest the principal of maturing portfolio securities in new purchases. It is usually positive for the US dollar.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
