- The Mexican Peso turns cautious as US Consumer Confidence and Durable Goods Orders loom.
- Fed’s Kashkari hawkish tone underscores the uncertainty surrounding trade, backing the central bank’s stance to hold interest rates steady.
- USD/MXN faces trendline resistance at 19.29, but remains in a broader downtrend.
The Mexican Peso (MXN) is losing momentum against the US Dollar (USD) a few hours before the US session starts, as the Greenback attempts a recovery.
With liquidity returning to markets from the Memorial Day holiday weekend in the US, the sell-off in bond markets has paused temporarily.
Despite an uptick in risk sentiment and a minor pullback in the Mexican Peso, USD/MXN remains steady in a tight range.
At the time of writing, the emerging market (EM) currency pair remains on a downward trajectory following its decline in April. However, a modest recovery has pushed it toward trendline resistance at 19.29.
US demand and sentiment indicators in focus ahead of key policy signals
The spotlight turns to the US Durable Goods Orders report for April this Tuesday. The indicator tracks new orders placed with US manufacturers for long-lasting goods, which means goods planned to last for three years or more, providing a gauge of industrial activity.
Markets are bracing for a sharp reversal in US Durable Goods Orders in April, with forecasts pointing to a 7.9% contraction in the headline figure, compared to the robust 9.2% increase seen in March. This would reflect a potential fallout from trade-related disruptions.
Later in the day, at 14:00 GMT, the US Conference Board will publish its Consumer Confidence Index for May. After plunging to a post-pandemic low of 86.0 in April, the upcoming print will provide further insight into the economic outlook of US households, amid mounting fiscal and geopolitical uncertainties.
Fed’s Kashkari urges patience, highlighting uncertainty from economic shocks,
Neel Kashkari, President of the Federal Reserve (Fed) Bank of Minneapolis, provided a temporary boost in confidence this Tuesday. When speaking at the Tokyo summit, where bankers, policymakers, and economists gathered to discuss, he maintained a hawkish tone for monetary policy.
To conclude his speech, Kashkari stated that “Massive shocks create uncertainty for policymakers, both in understanding the underlying dynamics of the shocks themselves and, for some shocks, in determining the appropriate policy response. In such moments, taking time to get more information to help inform the collective judgments of policymakers may be the best of an imperfect set of options,” the official site of the Federal Reserve Bank of Minneapolis reports.
These comments reiterate the Fed’s narrative that interest rates will likely remain at current levels until the impact of US President Trump’s tariffs on the economy becomes clearer.
Mexican Peso daily digest: US Consumer Confidence threatens USD/MXN
- With the Fed reiterating its ‘data-dependent’ stance, US Durable Goods Orders and US Consumer Confidence data due later in the day are in the spotlight.
- On Wednesday, the minutes from May’s Federal Reserve Open Markets Committee (FOMC) meeting will provide additional insight into the central bank’s decision to maintain interest rates at current levels and the potential trajectory of monetary policy in the near term.
- Market participants are awaiting the release of the Fed’s preferred inflation measure, which is the US core Personal Consumption Expenditures (PCE) data for April, as well as the University of Michigan Consumer Sentiment figures, both scheduled for release on Friday.
- These data points are crucial for understanding inflation and consumer sentiment, as they gauge US citizens’ feelings about the current economic situation. Both factors influence expectations regarding when the Federal Reserve (Fed) might consider cutting interest rates.
Mexican Peso technical analysis: USD/MXN rebounds toward trendline resistance, bearish pressure persists
USD/MXN continues to trade within a downward trend, with prices capped beneath the 10-day Simple Moving Average (SMA) at 19.33.
After hitting a new YTD low below 19.20 on Monday, a modest rebound in the US Dollar has pushed the pair to trendline resistance from the April decline at 19.29.
Momentum indicators remain weak, with the Relative Strength Index (RSI) flattening at 36.47, indicating that while bearish momentum is present, the market is not yet in oversold territory.
With the downtrend currently intact, a break below 19.20 could draw attention to the October low at 19.11, which serves as the next significant support level.
A sustained break below this level could open the door to deeper declines toward 19.00, while any rebound would first need to reclaim 19.47 to shift short-term sentiment.
USD/MXN daily chart
US Dollar FAQs
The US 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 found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
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 in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering 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 in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker 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 from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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