- USD/MXN drops to fresh five-week lows at 17.69.
- The US Dollar remains near yesterday’s lows.
- Mexican industrial production grows more than expected in May, while US producer prices are higher than expected.
The USD/MXN has started Friday trading around 17.80 before falling to fresh five-week lows at 17.69. At the time of writing, the pair is trading above 17.70, losing 0.37% on the day.
US Dollar Remains Weak Following Michigan PPI and Consumer Sentiment Data
The United States published its Producer Price Index (PPI) on Friday, which rose 2.6% year-on-year in the overall reading, above the previous 2.4% and the 2.3% expected. Excluding food and energy, the PPI rose 3% compared to the previous 2.6% and the 2.5% expected.
On the other hand, the University of Michigan consumer sentiment has fallen to 66 in the preliminary reading for July from 68.2 in June, its lowest level in eight months. The data has disappointed market expectations, which had expected an increase to 68.5. Its 5-year inflation component has fallen to 2.9% from 3% previously.
The Dollar Index (DXY) has remained lower, despite rising producer price inflation. The greenback fell today to daily lows of 104.08, touching the seven-week low reached yesterday.
On the other hand, Mexico’s industrial production grew by 0.7% monthly in May after falling by 0.5% in April, exceeding the increase of 0.4% estimated. This is the largest increase recorded in eleven months. On an annual basis, the indicator grew by 1% after increasing by 5.1% the previous month, better than the 1.2% expected by the market, according to the National Institute of Statistics and Geography (INEGI).
Mexican peso reaction
After eight consecutive days of lower lows, the next support remains at the 100 moving average on the daily chart at 17.21. Below that, the 17.00 zone awaits before seeing a stronger pullback towards 16.52, the low of May 21 and the last nine years.
On the upside, initial resistance awaits at the 18.00 area before running into a major barrier around 18.50, where the July high recorded on the 2nd 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 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.
