- The USD/MXN registers its third consecutive day of gains today, Tuesday.
- The US dollar hits new four-month highs on Trump’s proposed trade policies.
- The focus of the week is on US inflation which will be published on Wednesday and on Banxico’s interest rate decision which will be announced on Thursday.
USD/MXN rises for the third day in a row this Tuesday, rising from an intraday low of 20.32 to a daily high of 20.51. At the time of writing, the Dollar is trading against the Mexican Peso at 20.43, gaining 0.44% so far this day.
The Dollar advances unstoppably, approaching the 106.00 area
The US Dollar Index (DXY) continues to rise strongly on the second day of the week, rising at the opening of Wall Street to the 105.92 area, its highest level since last July 2.
The market is registering a wave of risk aversion that benefits the US dollar given the possible trade measures that the new Donald Trump government could implement. In addition, the possible mandate of Republicans in both the Senate and the House of Representatives could make it easier for these measures to be carried out without opposition. The increases in tariffs on countries like Mexico and possible anti-immigration measures could be a major blow to the Mexican economy, whose currency has been weakening in recent days.
Focus on the US CPI and Banxico’s interest rate decision
USD/MXN traders will be closely monitoring US inflation data for the month of October tomorrow. The headline CPI is expected to rise to 2.6% year-on-year from 2.4% in September, while underlying prices are expected to maintain their growth pace unchanged at 3.3%.
On Thursday, Banxico will announce its decision on interest rates, estimating a reduction of 25 basis points to 10.25% from the current 10.5%.
USD/MXN Price Levels
The trend remains firmly upward for the next few hours, with the Relative Strength Index (RSI) well established above 50 on short and long-term charts. The initial resistance 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 pullback, the first support appears at 20.17, the 100-period moving average on the one-hour chart. A break of this level will target the 20.00 hinge zone. 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.
