- USD/MXN rises to one-month highs at 19.98.
- The US dollar reacts lower against most currencies following weak US ISM manufacturing
- Mexico’s unemployment rate rose by one-tenth in July, reaching 2.9%, its highest level in six months.
The USD/MXN has risen to its highest level in a month, specifically since August 5, just before the publication of the ISM manufacturing PMI. The Dollar has reached the 19.98 area, standing just a short distance from 20.00. Following the data, the pair is trading above 19.88, gaining 0.32% on the day.
US Dollar Weakens Following Disappointing ISM Manufacturing PMI
The US Dollar Index (DXY) has fallen to its lowest level of the day at 101.58 after the US ISM manufacturing PMI rose to 47.2 in August from 46.8 in July, but missed the market-expected 47.5. The manufacturing sector remains in contraction territory for the fifth consecutive month, so traders’ focus will now shift to the US ADP private employment and Non-Farm Payrolls data for August due on Thursday and Friday.
Meanwhile, Mexico released its July employment data, showing a rise to 2.9% from 2.8% in June, as expected. This is the highest unemployment rate recorded in six months.
USD/MXN Price Levels
Continuing the bullish trend on the daily chart, the first resistance that the pair will encounter will be in the 20.00/20.06 zone, the psychological zone and August high, respectively. A breakout of these levels can push the USD/MXN towards the October 2022 highs around 20.17.
On the downside, the first relevant support appears at the low of the previous week, at 19.10. Below the 19.00 region the cross could go to around 18.40/18.50, where the August lows are.
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.
