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Dollar rises to two-day highs against Mexican peso after mixed US data

  • USD/MXN rises to two-day highs at 18.19.
  • The US Dollar appreciates after mixed data from the United States.
  • Conference Board consumer confidence declines in June.

USD/MXN has started the day below 18.00, hitting an intraday low at 17.88, but in recent hours has regained traction, rising to a two-day high of 18.19.

US Dollar Gains Ground After Mixed US Data

The United States published several economic data this Tuesday with mixed results. On the one hand, the Chicago Fed’s national activity index has risen to 0.18 in May from -0.26, its best figure in ten months, while the Richmond Fed manufacturing index has fallen to -10 in June from 0, its worst result in three months. Meanwhile, the housing price index rose 0.2% in April compared to 0% in March, without reaching the expected 0.3%. Elsewhere, Conference Board (CB) consumer confidence has dropped to 100.4 in June from 101.3, although the current situation index has improved to 141.5 from 104.8.

The Dollar Index (DXY) has rallied following the data, rising from the 105.60 area to 105.79, its highest level of the day.

Focus on Banxico’s decision after Mexico’s inflation data

USD/MXN traders will focus their attention this week on Banxico’s interest rate decision that will be revealed next Thursday, June 27 at 19:00 GMT. No changes are expected in rates, which are at 11% after the 25 basis point cut made in March. Mexican inflation data published yesterday support this position of the central bank. Before Banxico, the National Institute of Statistics and Geography (INEGI) will publish the unemployment rate for May, expecting an increase to 2.7% from 2.6% in April.

USD/MXN Price Levels

With USD/MXN trading above 18.12, gaining 0.98% on the day, the next barrier to the upside appears at 18.21, where the 100 moving average is on the hourly chart. Above, the main resistance is at 18.68, last week’s top, before 18.99/19.00, month’s high and round level, respectively.

On the downside, initial support lies at yesterday’s low, 17.87, before finding containment around the 17.40/50 area, where the June 5-6 lows are.

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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