- USD/MXN rises to daily highs at 17.81.
- The US dollar is advancing after the positive data from the Philadelphia Fed manufacturing index.
- Focus turns to speeches by Fed members.
The USD/MXN opened Thursday around a daily low of 17.70. In the European morning, the pair has been gaining ground to reach daily highs of 17.81 at the Wall Street opening. At the time of writing, the US Dollar is trading against the Mexican Peso above 17.76, gaining 0.37% so far this day.
US Dollar Appreciates Following Strong US Manufacturing Data and Cooling Labor Market
The Philadelphia Federal Reserve’s manufacturing index rose more than 12 points in July, soaring to 13.9 points from 1.3 in June, reaching its highest level in three months. The figure significantly exceeded market expectations, which had expected a slight increase to 2.9 points.
Meanwhile, weekly applications for unemployment benefits in the US rose by 20,000 to 243,000 from 223,000 previously, exceeding the 230,000 expected by the market.
The US Dollar Index (DXY) has moved higher on the back of the mixed data, rising to a daily high of 103.92. Meanwhile, CME Group’s FedWatch tool has raised the chances of a Fed interest rate cut in September to 93.5%.
Regarding the impact of a possible victory by Donald Trump in the US presidential elections on the Mexican economy and its currency, the former president yesterday criticised China for building “huge car plants” in Mexico, saying that “something really bad is happening there.”
USD/MXN Price Levels
If the bullish advance continues, it will find initial resistance in the psychological zone of 18.00 before advancing towards around 18.50, where the highs for the month of July tested on the 2nd are located.
On the downside, USD/MXN will find support at 17.60, last week’s low touched on Friday, before falling towards 17.23, where the 100-day moving average is located.
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. As of 2022, it is the most traded currency in the world, accounting for over 88% of all global foreign exchange transactions, equivalent to an average of $6.6 trillion in transactions per day. Following World War II, the USD took over from the British Pound 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: to achieve price stability (control inflation) and to promote full employment. Its main tool for achieving these two goals is to adjust interest rates. When prices rise too quickly and inflation exceeds the Fed’s 2% target, the Fed raises rates, which helps 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 in a jammed financial system. It is an unconventional policy measure used when credit has dried up because banks are not lending to each other (for fear of counterparty default). It is a last resort when simply lowering 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 typically leads to a weakening of the US dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal of maturing securities in new purchases. It is generally 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.
