- The Mexican peso weakens and falls to two-day lows.
- The US dollar gains ground against the MXN on expectations of rate cuts in Mexico.
- Banxico is expected to cut interest rates by 25 basis points to 10.5%.
The US Dollar has gained traction against the Mexican Peso, rising to a two-day high of 19.49 at the opening of Wall Street on Wednesday after having started the day testing a daily low of 19.30. At the time of writing, the USD/MXN is trading above 19.45, gaining 0.62% on the day.
The dollar weakens against its counterparts but not against the Mexican peso
The US Dollar Index (DXY) continues to weaken after yesterday’s drop on weak consumer confidence data from the Conference Board. The greenback has fallen to a one-week low of 100.22 as markets estimate that there is a 62.1% chance of another 50 basis point rate cut by the Fed at its November 7 meetingas currently published by the CME Group’s FedWatch tool.
Banxico’s interest rate decision is the focus of attention
On the other hand, the USD/MXN is losing traction in anticipation of a 25 basis point interest rate cut by Banxico, which will make its monetary policy announcement tomorrow, Thursday. Rates are expected to drop to 10.5% from the current 10.75%. If this cut is confirmed, Mexico would have the lowest rates seen since December 2022.
USD/MXN Price Levels
The USD/MXN remains bullish on the daily chart. If it clearly breaks through the resistance at 19.50, the weekly high, the next target will be the psychological zone of 20.00 and 20.15, the 2024 high recorded on September 5.
On the downside, the first support awaits in the area of 19.06/19.00, September low and round level, respectively. Further down, the pair may drop to 18.41, 100-period moving average on the daily chart.
Economic indicator
Rate of interest
He Bank of Mexico sets the interbank interest rate. If the central bank’s outlook on the Mexican economy and inflation is positive and it raises interest rates, this is considered to put upward pressure on the Mexican peso. Likewise, if the bank’s outlook on the economy is negative and it maintains or cuts interest rates, this will put downward pressure on the currency.
Next post: Thu Sep 26, 2024 19:00
Frequency: Irregular
Dear: 10.5%
Previous: 10.75%
Fountain: Banxico
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.
