- USD/MXN plummets to seven-day lows at 18.11.
- The US dollar fell sharply to a three-week low following weak US employment and services sector data.
- The US ISM services PMI has unexpectedly plummeted to its lowest level since May 2020.
The USD/MXN started Wednesday’s session trading flat around 18.30, but the release of weak US employment and services data caused the Dollar to turn lower after the Wall Street opening, falling to one-week lows at 18.11.
US Dollar weakens sharply following weak ADP and ISM Services PMI data
The ISM (Institute for Supply Management) services PMI index has plummeted five points in June, falling to 48.8 from 53.8 in May, and reaching its lowest level since May 2020, at the height of the first wave of the Covid pandemic. The figure disappoints market expectations, which had expected a slight decline to 52.5.
Previously, the US had also published the ADP private employment reportwhich showed that 150,000 jobs were created in June, compared to the 160,000 expected. This is the lowest figure for job creation seen by the indicator in five months.
The Dollar Index (DXY) has suffered a sharp drop on the data, plunging to 105.05, its lowest level in three weeks. At the time of writing, the greenback is trading above 105.11, losing 0.59% on the day.
The data has led to a rise in expectations for a first interest rate cut by the Fed in September. According to the FedWatch tool, the probability now rises to 64.8% from 63.2% yesterday.
USD/MXN Price Levels
With the US Dollar trading against the Mexican Peso above 18.14 at the time of writing, losing 0.65% on the day, the first relevant support appears at the 18.00 area. A downside break of this level would target 17.87, last week’s low (June 24) and 17.15, the 100-day moving average.
On the upside, a break above this week’s high near 18.50 would be necessary to advance towards the 18.99/19.00 region, where the July top and a strong psychological level are located respectively.
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 daily transactions. 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.
