- USD/MXN drops to 16-day lows at 19.11.
- The US dollar rises against the main currencies except against the Mexican peso due to the strong NFP data
- Mexico’s unemployment rate rises to one-year highs, while US Non-Farm Payrolls significantly improve expectations.
The USD/MXN has fallen sharply after the publication of employment data from Mexico and the United States, which have offered mixed results. The pair has fallen to 19.11, its lowest level in more than two weeks, specifically since September 18. At the time of writing, the US Dollar is trading against the Mexican Peso at 19.14, losing 1.07% on the day.
The US dollar strengthens against most currencies but not against the Mexican peso
The US Dollar Index (DXY) has reacted to the good Non-Farm Payrolls (NFP) data with a sharp rebound that has taken it to 102.64, a seven-week high, after having tested a daily low of 101.82.
The US has generated 254,000 Non-Farm Payrolls in Septembera figure much higher than the estimated 140,000. In addition, the August figure has been revised upwards to 159,000 from the expected 142,000. On the other hand, the unemployment rate has fallen to 4.1% from the previous and projected 4.2%. Wage income increased 4% annually compared to 3.9% previously and 3.8% forecast.
CME Group’s FedWatch tool has been updated following the NFP. The Chances of an interest rate cut of just 25 basis points by the Fed have soared to 93% from 65% yesterday, practically ruling out the option of a 50-point reduction.
Mexico’s unemployment rate rises to 3% in August, its highest level in a year
The Mexico’s unemployment rate has risen one tenth in August, rising to 3% from 2.9% in July, as published by the National Institute of Statistics and Geography (INEGI). This is the worst result recorded by the indicator in a year. According to the INEGI statement, the unemployed population amounted to 1.9 million people, while the employed population stood at 59.7 million.
The data has strengthened the Mexican peso, as higher unemployment may make Banxico rethink the size of the next interest rate cut.
USD/MXN Price Levels
Although the USD/MXN maintains a clearly bullish outlook on the daily chart, on the four-hour and one-hour charts we see a neutral bias. The pair is losing ground for the fifth consecutive day. If it continues to decline, the first support appears at the psychological level of 19.00. Below, the pair could fall towards 18.52, 100 moving average, and 18.42, low of the last two months.
To the upside, the first resistance is at 19.83, this week’s maximum, prior to the resistance located in the key area of 20.00 and at 20.15, the ceiling of 2024.
The 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.
