- USD/MXN rises to two-day highs at 17.81.
- The US dollar weakens against its main rivals due to the increasing chances of a Fed interest rate cut in September, but appreciates against LATAM currencies.
- The attack on Donald Trump this weekend has raised the stakes for the former president to win the November elections.
The USD/MXN has climbed to a two-day high of 17.81 today after starting the day testing a daily low of 17.64. At the time of writing, the US Dollar is trading against the Mexican Peso above 17.76, gaining 0.54% on the day.
The dollar weakens against European currencies but strengthens against Latin American currencies
The attack suffered by Donald Trump last Saturday in Pennsylvania has considerably increased the bets that ensure that the former president will reach a new mandate in the White House in November. If this happens, both trade and immigration policy could be affected, since the Republican government could impose higher tariffs on products from Latin American countries and increase access restrictions to the country. These events are affecting currencies such as the Mexican Peso or the Colombian Peso, which have depreciated since Monday.
The Dollar Index (DXY) has fallen in the last hour to 103.65, a new four-month low. The decline is due to comments from several Fed members. Adriana Kugler has stated that the decline in US inflation combined with the weakening labor market could lead to a rate cut later this year. On the other hand, Christopher Waller has pointed out that the most likely direction for monetary policy is rate cuts.
CME Group’s FedWatch tool today puts the chances of a first interest rate cut in September at 91.7%.
The United States published its industrial production data today, which grew by 0.6% month-on-month in June after advancing by 14% in May, according to the Federal Reserve. The figure exceeds market expectations, since an increase of 0.3% was expected. Capacity utilization, meanwhile, has expanded to 78.8% in June from 78.3% the previous month (figure revised downwards from 78.7%). The result exceeds the forecasts of 78.6%. Housing starts were also published, which rose by 3% in June after falling by 4.6% in May. Building permits rose by 3.4% after falling by 2.8% the previous month.
USD/MXN Price Levels
Further bullish momentum will find initial resistance at the psychological zone of 18.00 before advancing towards the 18.50 area, where the July highs 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.
