- The USD/MXN gains traction about 19.05 in the first bars of the European session on Friday, with an increase of 0.98% in the day.
- The increase in tensions between Israel and Iran provides some support to the US dollar.
- The increasing expectations of fed rate cuts and the highest prices of oil could limit the rise in the torque.
The USD/MXN torque gains strength around 19.05, breaking the two -day running streak during the European session on Friday. The feeling of risk aversion amid the growing tensions between Israel and Iran exerts some sales pressure on the Mexican peso (MXN) against the dollar. The operators will keep an eye on the preliminary reading of the US consumer’s feeling report, which will be published later on Friday.
Israel launched a series of air attacks against Iran in the early hours of Friday, increasing the fears of broader geopolitical tensions in the region, according to CNBC. Israel’s Minister of Defense, Israel Katz, declared a state of emergency shortly after the attack began and warned the population that “an attack with missiles and drones against the state of Israel and its civilian population in an immediate future is expected.”
Iranian state media transmitted a statement from the General Staff of the Armed Forces of Iran who claimed that the US and Israel will receive a “hard blow” in response. Investors will closely monitor developments around conflicts between Israel and Iran. Any sign of increasing tensions between these countries could boost the flows to shelter, supporting the US dollar (USD).
On the other hand, an increase in crude oil prices could help limit losses of Mexican weight, since Mexico is an important oil exporter and the highest prices of crude oil tend to have a positive impact on the value of MXN.
The data published on Thursday showed that the production prices in the US increased less than expected in May, which weighs on the dollar. The latest data followed the May Consumer Price Index (CPI), which was colder than anticipated. The operators see 80% probabilities of a Fed feat cut in September, with a second cut as soon as in October, compared to December, as seen before inflation data, according to the CME Fedwatch tool.
Mexican weight FAQS
The Mexican weight (MXN) is the most commercialized currency among its Latin American peers. Its value is widely determined by the performance of the Mexican economy, the country’s central bank policy, the amount of foreign investment in the country and even remittance levels sent by Mexicans living abroad, particularly in the United States. Geopolitical trends can also affect MXN: for example, the Nearshoring process (or the decision of some companies to relocate the manufacturing capacity and supply chains closer to their countries of origin) is also considered a catalyst for the Mexican currency, since the country is considered a key manufacturing center in the American continent. Another catalyst for MXN is oil prices, since Mexico is a key exporter of the raw material.
The main objective of the Central Bank of Mexico, also known as Banxico, is to maintain inflation at low and stable levels (in or close to its 3%target, the midpoint of a tolerance band between 2%and 4%). To do this, the bank establishes an adequate level of interest rates. When inflation is too high, Banxico will try to control it by raising interest rates, which makes the indebtedness of homes and companies more cooling, thus cooling the demand and the economy in general. The highest interest rates are generally positive for Mexican weight (MXN), since they lead to higher yields, which makes the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken the MXN.
The publication of macroeconomic data is key to evaluating the state of the economy and can have an impact on the valuation of the Mexican weight (MXN). A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only attracts more foreign investment, but it can encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this fortress is accompanied by high inflation. However, if the economic data is weak, the MXN is likely to depreciate.
As an emerging market currency, the Mexican weight (MXN) tends to rise for periods of risk, or when investors perceive that the general market risks are low and, therefore, are eager to participate in investments that carry a higher risk. On the contrary, the MXN tends to weaken at times of market turbulence or economic uncertainty, since investors tend to sell higher risk assets and flee to the most stable safe shelters.
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.
