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The Dollar retests two-week lows against the Mexican Peso around 16.99

  • USD/MXN retested two-week lows at 16.99 on Monday.
  • The price of the Dollar weakens while awaiting employment figures from the United States.
  • Mexico publishes consumer confidence and inflation data for February this week.

The USD/MXN began Monday nearing the 17.03 zone, but has subsequently been losing ground until it retested the 16.99 zone, a thirteen-day low, before the opening of Wall Street.

The Dollar loses traction while awaiting US employment data

The Dollar Index (DXY) has opened the week below the 104.00 zone. In the European morning, the DXY has fallen to a two-day low at 103.65. The greenback remains lukewarm following last week's weak US data.

The market is cautious awaiting the data from the United States that will mark the week. The February ISM Services PMI will be released this Tuesday, expected to weaken to 53 from 53.4. The ADP private employment report will be published on Wednesday, which estimates a creation of 150,000 jobs in February compared to 107,000 in January. On Thursday, the weekly unemployment claims for the week of March 1 will be announced, while Jerome Powell, president of the Fed, will appear before Congress for the second consecutive day, also being able to move the greenback. Finally, on Friday it will be time for Non-Agricultural Payrolls, with a forecast of 200,000 jobs generated compared to 353,000 the previous month.

Mexico will also publish relevant data this week. Consumer confidence for February will be released on Wednesday and inflation for the same month on Thursday, which is expected to fall to 4.43% annually from 4.88% in January.

Today, the National Institute of Statistics and Geography of Mexico (INEGI) has published the Monthly Private Consumption Indicator, showing an increase of 0.2% in December compared to November. The Timely Monthly Indicator of Manufacturing Activity for January has also been published, an indicator that has risen 0.5% to 105.7 points.

USD/MXN Price Levels

With the Dollar trading against the Mexican Peso above 17.01 at the time of writing, flat on the day, a downward break of the 17.00/16.99 region could lead to a decline towards the support located at 16.78, the 2024 low reached on last 8 from January.

To the upside, the initial barrier remains at 17.15, the ceiling of February 22 and 23. Further up, USD/MXN will encounter resistance at 17.22, the February 13 high. Above, the cross will find a retaining wall at 17.28 (February highest level).

US Dollar FAQ

What is the US Dollar?

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.

How do the decisions of the Federal Reserve affect the Dollar?

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.

What is Quantitative Easing and how does it influence 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.

What is quantitative tightening and how does it influence 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

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