- USD/MXN falls to daily lows of 20.44.
- The US dollar loses traction after reaching six-month highs.
- US inflation stood at 2.6% annually in October, in line with expectations.
USD/MXN has lost strength this Wednesday, retreating from a daily high of 20.64 to a daily low of 20.44. At the time of writing, the US Dollar is trading above 20.50 against the Mexican Peso, losing 0.38% daily.
US Dollar takes a breather after rising to six-month highs
The US Dollar Index (DXY) has risen in the early part of Wednesday to a six-month high of 106.21. The greenback has not reached such a high level since May 1. After the US inflation data, which has been in line with expectations, the index has fallen to around 105.70.
The US Bureau of Labor Statistics reported that the headline Consumer Price Index (CPI) rose 2.6% year-over-year in October versus 2.4% in September, as expected. Monthly inflation also met expectations and grew 0.2% in October.
For its part, the core CPI—which excludes the most volatile categories of food and energy—registered an annual increase of 3.3% in the last twelve months, unchanged from the previous month and meeting forecasts. On a month-on-month basis, the indicator grew by 0.3%, as expected.
With general inflation picking up, although in line with expectations, the Fed could maintain its intention to cut interest rates by 25 basis points at the December meeting. After the CPI, the CME Group’s FedWatch tool values ​​this possibility at 79.1%.
Later in the day, statements from several members of the Federal Reserve could generate movements in the Dollar. Among others, John C. Williams, president of the New York Fed, Lorie K. Logan, member of the Fed, Alberto G. Musalem, president of the St. Louis Fed and Jeff Schmid, member of the entity, will speak.
The focus shifts to Banxico
USD/MXN traders will now focus on Banxico’s monetary policy meeting that will take place this Thursday, November 14. The entity is expected to cut interest rates by 25 basis points to 10.25%, reaching their lowest level in two years.
USD/MXN Price Levels
In case of gaining momentum again, the initial resistance of the USD/MXN is at the ceiling of the last two years reached on November 6 at 20.80. Above, there is a major barrier around the 21.00 area, where the July 2022 highs are also.
In case of a retreat, the first support appears in the hinge zone of 20.00. Below, the level 19.75 awaits, the minimum of the last three weeks.
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.
