- USD/MXN has reached three-day highs at 18.33.
- The US Dollar as measured by the DXY Index jumps above 106.00.
- US new home sales plummet 11.3% in May.
The USD/MXN has traded on Wednesday between the daily low reached at the European opening at 18.06 and the three-day high reached hours later at 18.33. The weak US data on new home sales has driven the pair to the 18.20 area in the American session, where it gained 0.58% on the day.
Dollar hits eight-week highs above 106.00
The Dollar Index (DXY) has reacted to the data with a slight decline below 106.00, which in any case has not weakened the greenback, which is still immersed in a strong upward trend, since minutes before it reached a maximum of eight weeks on 106.13.
The sale of new homes in the United States plummeted 11.3% during the month of May after rising 2% in April, as published by the Census Bureau. This is the largest drop recorded by the indicator since June 2022. The positive data is that the April data has been revised upwards from -4.7% to the current +2%.
Mexico awaits its ‘Super Thursday’: Banxico rate decision and unemployment data for May
USD/MXN traders await Thursday, when Mexico will reveal several relevant data. First of all, at 12:00 GMT the trade balance for May will be published and the unemployment rate of the same month. Unemployment is expected to rise to 2.7% from 2.6% in April. Finally, at 19.00 GMT, Banxico will announce its interest rate decisionalthough no variation from the current 11% is expected, especially after inflation in the first part of June was higher than expected.
USD/MXN Price Levels
Renewal of bullish momentum would run into resistance at 18.68, last week’s top, before attempting to extend to 18.99/19.00, month’s high and round level, respectively.
On the downside, initial support lies at Monday’s low of 17.87, before finding contention around the 17.40/50 zone, where the lows of June 5 and 6 are located. Further down, further support awaits at the 100 moving average around 17.09.
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 whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal of maturing securities in new purchases. It is generally 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.
