- USD/MXN drops to 29-day lows at 20.07.
- The US dollar rebounds to three-week highs in its DXY index, but the Mexican peso gains the upper hand in the USD/MXN cross.
- Mexico’s private spending grows 2.9% annually in the third quarter of the year, above the previous 2.7%.
- The focus of the pair’s operators is today on the Fed’s interest rate decision and tomorrow on Banxico’s.
USD/MXN opened the European session testing a daily high at 20.21, but at the Wall Street open it has fallen sharply to four-week lows at 20.07. At the time of writing, the US Dollar is trading against the Mexican Peso at around 20.14, losing 0.19% so far this day.
US Dollar rebounds to three-week highs ahead of Fed
The US Dollar Index (DXY) has risen to three-week highs at 107.19 on Wednesday, maintaining its gains just ahead of the US Federal Reserve’s monetary policy decision. This increase in the greenback has had no effect against the Mexican peso, which is also awaiting the announcement on Banxico’s interest rates.
CME Group’s FedWatch tool gives a 98.6% chance that the Fed will cut its interest rates today by 25 basis points to 4.5%. The market takes this reduction for granted, focusing on the appearance of Jerome Powell, president of the entity, and on the FOMC dot graph, since the projections are expected to show a more restrictive policy in 2025.
Read: US Federal Reserve expected to cut interest rates, dot plot will reduce easing further
Mexico’s private spending increases in the third quarter as the focus turns to Banxico
Mexico’s private spending grew 2.9% year-on-year in the third quarter of 2024 after increasing 2.7% in the second quarter, as reported by the National Institute of Geography and Statistics (INEGI).
On a quarter-on-quarter basis, private spending rose 1.1% between July and September after having fallen 0.6% between April and June.
On the other hand, USD/MXN traders are closely awaiting Banxico’s interest rate announcement that will be published tomorrow, Thursday at 19:00 GMT, which is estimated to lower its rates to 10% from the current 10.25%. The possibility that the Central Bank of Mexico offers clues in its statement of a more gradual reduction in rates next year, given the possible consequences of a trade war with the Trump administration, is strengthening the Mexican peso in recent hours against the Dollar.
USD/MXN Price Levels
On a technical level, the Relative Strength Index (RSI) of 14 is below 50, pointing to a short-term bearish tilt in the USD/MXN. A break of today’s four-week low at 20.07 will cause an initial drop towards the psychological zone of 20.00. Below it awaits 19.76, where the November low and the 100-period moving average meet on the daily chart.
To the upside, the most important resistance is located at 20.60, the December maximum tested on day 2. Higher up, the focus will be on 20.83, the 2024 ceiling reached on November 26.
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
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.
