- USD/MXN rises to 20.22, its highest level in 25 months.
- The Dollar weakens after the disappointing US GDP but remains rising against the Mexican Peso due to uncertainty regarding the US elections.
- The Mexican economy grew 1.5% annually in the preliminary reading of the third quarter.
USD/MXN posts gains for the fourth consecutive day, rising from the daily European morning low in the 20.00 area to a new 25-month high at 20.22 after the Wall Street open.
US Dollar declines after mixed ADP and US GDP data
The US Dollar Index (DXY) has reacted lower following the release of important US data released today. The greenback has retreated to 103.98, its lowest level in three days.
The US Gross Domestic Product (GDP) disappointed markets by showing a growth of 2.8% in the year-on-year reading for the third quarter, below the 3% expected.
For its part, the ADP private employment report showed that 233,000 jobs were created in October, well above the 159,000 in September and the 115,000 estimates.
Mexico improves its economic growth while remaining attentive to polls on the US electoral race
Mexico’s Gross Domestic Product (GDP) grew 1.5% year-on-year in the preliminary reading for the third quarter after advancing 2.1% in the second quarter, as published by the National Institute of Statistics and Geography (INEGI). The figure exceeds market expectations, which expected 1.2%.
Although the Mexican economy has shown continuous growth since the beginning of 2021, this is its slowest pace of progress since the third quarter of that year.
On the other hand, investors are paying attention these days to the latest election polls in the United States. Almost all media point to a tie between Donald Trump and Kamala Harris. The New York Times gives a very slight advantage to the Democratic candidate, but Trump is gaining ground in states like Georgia and Arizona, where the difference in voting intention is two points. Nervousness in the markets will increase in the remainder of the week until Tuesday, November 5, the date of the electoral appointment.
USD/MXN Price Levels
With the US Dollar currently trading above 20.16 against the Mexican Peso, gaining 0.46% on the day, the trend clearly points upwards, since the 20.15 zone has been surpassed where the maximum of 2024 was previously located. If the USD/MXN surpasses the current ceiling of 20.22, the next target will be 20.57, maximum of September 2022. Higher awaits the region of 20.99/21.00, ceiling of July 2022 and psychological zone.
To the downside, first support awaits at the 100-period moving average on the one-hour chart at 19.97. Further down, last week’s low at 19.75 can act as a containment barrier.
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.