- The USD/MXN loses ground for the fifth consecutive day.
- The US dollar weakens slightly ahead of US CPI data due on Wednesday.
- Mexican inflation moderated more than expected during the month of November.
USD/MXN has started the week testing an intraday high at 20.22, but following the release of softer than expected inflation data from Mexico, it has fallen to a daily low of 20.11. The US Dollar registers its fifth consecutive day of losses against the Mexican Peso, now trading above 20.14, falling 0.20% daily.
US Dollar weakens ahead of US CPI
The US Dollar Index (DXY) is moving lower today. After rising to a two-day high of 106.21, it has subsequently fallen to 105.91. At this moment, the index is moving above 105.92, losing 0.06% daily.
Operators are cautiously awaiting US inflation data for the month of November, which will be published on Wednesday. The general CPI is expected to rise to 2.7% annually from 2.6% in October, while the underlying Consumer Price Index, which excludes fresh food and energy, could remain unchanged at 3.3%.
The CME Group’s FedWatch tool currently projects an 89.3% probability of an interest rate cut of 25 basis points by the US Federal Reserve at its meeting on December 18. On Friday, Austan Golsbee, president of the Chicago Fed, said that the entity is expected to reach the neutral interest rate by the end of 2025.
Mexico’s inflation softens more than expected
He Mexico’s National Consumer Price Index (INPC) has fallen 0.21% in the year-on-year reading for November, standing at 4.55% compared to 4.76% in October. This is the lowest reading recorded by the indicator in eight months. Inflation has slightly improved market expectations, which expected 4.59%.
Annual core inflation, excluding fresh food and energy prices, was 3.58% compared to 3.80% previously.
This week, Mexico will publish other relevant data such as consumer confidence for November this Tuesday and industrial production for October on Thursday.
USD/MXN Price Levels
The USD/MXN trend is tilting slightly lower on the one-hour chart, although broader time frames still offer a bullish outlook. The Relative Strength Index (RSI) is below 50 in the short and long term, suggesting further declines in the coming hours.
The initial support is at 20.10, the December low recorded last Friday the 6th. A clear break of the psychological zone of 20.00 could cause a fall towards 19.76, the November bottom.
To the upside, the first resistance is at 20.25, the 100-period moving average on the daily chart. Above it expects 20.60, last week’s maximum. A break above this region could generate a rise towards 20.83, the 2024 ceiling 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.
