- USD/MXN posts gains after bouncing off the 20.14 support.
- The US Dollar rises to two-week highs at 106.81.
- US inflation did not offer any surprises, so a 25 basis point Fed rate cut is assumed.
The US dollar fell against the Mexican peso after the publication of the US CPI, finding support at the daily low already tested yesterday at 20.14. Previously, USD/MXN had reached a daily high at 20.25. At the time of writing, the pair is trading above 20.20, gaining 0.22% on the day.
The US dollar strengthens due to the expected persistence of US inflation
The US Dollar Index (DXY) has jumped to a two-week high of 106.81 after data showed that US inflation maintained its pressure on prices in November, meeting expectations.
The US Consumer Price Index is up 2.7% annually in November from 2.6% in October. The core CPI has remained persistent at 3.3%. Following the data, everything indicates that the Federal Reserve will cut its interest rates by 25 basis points next Wednesday, December 18. CME Group’s FedWatch tool has increased the odds of this downgrade from 0.25% to 96.4% from the 86.1% projected yesterday.
The focus turns to industrial production in Mexico and production prices in the United States
While waiting to digest the inflation data published today, USD/MXN traders will be attentive tomorrow to various data that could move the pair.
First of all, Mexico will publish industrial production for Octoberwith an annual drop of 0.6% expected in October after the 0.4% decline in September.
Later, the US will release its November Producer Price Index (PPI). An increase to 2.6% year-on-year in November is forecast from 2.4% previously. Excluding food and energy, an increase to 3.2% is estimated from the previous 3.1%. This data will be published at the same time as the weekly unemployment benefit claims for the week of December 6, which are estimated to reach 220,000 compared to the previous 224,000.
USD/MXN Price Levels
The USD/MXN trend remains downward in the short term. If it continues to fall, the initial support is at 20.10, the December minimum recorded last Friday the 6th. A clear break of the psychological zone of 20.00 could cause a fall towards 19.76, the November floor.
To the upside, the first resistance is at 20.32, the highs of yesterday and so far this week. Above it expects 20.60, last week’s ceiling. A break above this region could generate a rise towards 20.83, the highest level of 2024 reached on November 26.
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.
