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Dollar falls to eight-day lows against Mexican peso after weak US retail sales

  • USD/MXN falls to eight-day lows at 18.29.
  • US retail sales weaken the US dollar.
  • The elected president of Mexico assures that the exchange rate has stabilized.

The US Dollar started Tuesday trading around a daily high of 18.56, but following the release of US Retail Sales, which grew less than estimated, the USD/MXN fell to an eight-day low of 18.29. At the time of writing, the pair is trading above 18.38, losing 0.77% on the day.

US Dollar declines on weak US retail sales

US retail sales grew 0.1% monthly in May after falling 0.2% in April (revised downward from 0%), according to the Census Bureau. The increase is slightly less than the 0.2% expected by the market. Excluding vehicles, the indicator has fallen 0.1%, disappointing the expected 0.2% increase. Additionally, April’s data has been revised downward, falling to -0.1% from +0.2% previously.

The Dollar Index (DXY) has fallen following the release of US retail sales, which were lower than expected. The DXY has retreated from the area around 105.30 to three-day lows at 105.13.

The US also published industrial production data, which rose 0.9% monthly in May, above the 0% in April and the estimated 0.3%.

For its part, Mexico released its private spending figures for the first quarter, showing a growth of 1.5% compared to 0.9% in the last third of 2023.

At the political level, the president-elect, Claudia Sheinbaum, assured yesterday Monday in a press conference that the exchange rate of the Mexican Peso had stabilized and that both markets and businessmen should not question that investments in Mexico are safe.

USD/MXN Price Levels

Although the trend is still bullish on the 4-hour chart, it is turning neutral on the one-hour chart. The first resistance appears at the 100 moving average located at 18.56, above which an important barrier awaits at 18.99/19.00, last week’s ceiling and psychological level, respectively.

To the downside, a break of today’s daily low at 18.29 will find immediate support at 18.20 (June 10 bottom) before falling towards the round 18.00 figure.

USD/MXN One Hour Chart

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

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