Greenback Turns Weak after Dovish Outlook of the Fed

US DollarFor the past six months, the Mexican currency Peso has been on the tear against US Dollar. In the year 2017, Peso turns out to be the best performing currency with an appreciation of approximately 20 percent.

The less corrosive rhetoric of US President and Bank of Mexico’s aggressive monetary policy helped the Peso currency to rally against Greenback. We anticipate the Mexican money to strengthen even after the US Fed hike rate announced on Wednesday because of the below-mentioned reasons.

As speculated, there was a hike of 25 basis points by US Fed on Wednesday. The walk highlights a weak inflationary pressure and the statement accompanied by the second hike in 2017 was bearish.

There is also a decrease of 0.3% in the FY17 headline inflation outlook from 1.9% to 1.6% as forecast in March. It is expected that the core inflation to be 1.7% from 1.9% issued earlier.

México News Network

The Central Bank of Mexico has also revealed its plan to minimise the balance sheet that has expanded to a whopping $4.5 trillion after the financial crisis in 2008. Fed believes that in the latter part of this year, it would start offloading assets worth $6 billion per month. For every quarter, the cap level will be increased by $6 billion until it reaches the figure of $30 billion per month. The entire process will continue until the balance sheet come to a figure of $2-$2.5 trillion.

The Bureau of Labor Statistics on Wednesday stated there was a decline of 0.1 percent in consumer prices in May as compared to 0.2% increase in past month. Similarly, a report from Census Bureau states that US Retail sales dipped to its 16-month low figure in May. There was a 0.3% decline in core retail sales as compared to the speculation of the analysts of 0.2% increase. On the contrary, there was a 0.3% growth in retail sales in April.

In Mexico, the consumer prices increased to a figure of 16% on Y-O-Y in May which is up from 5.82% in the earlier month and slightly above the expectation of the market of 6.15%. Similarly, there was a 3.5% reduction in the unemployment rate from 3.8% last year. In April, the country posted a trade surplus of $617 million as compared to the trade deficit of $2.11 billion in the same period the previous year. The surplus was only because of the result of strong first-quarter GDP growth of 2.8 percent on year to year basis. It is likely that the currency pair USD/MXN will remain bearish because of the weak inflation outlook by US Federal Reserve and reliable economic data from Mexico.

USDMXN Pair June 16th 2017

USDMXN Pair June 16th, 2017

At present, the currency pair is facing the resistance at 19.30. The MACD indicator is moving below the zero line, and it indicates a bearish momentum. Hence, we can quickly expect the currency pair to dip low and reach the next significant support at 17.20.

Rich Archer

Rich Archer

Hi, my name is Rich Archer. I am living in London. Welcome to Binary Manual. Reach to Binary Options broker reviews and market news here.


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