On Tuesday the dollar index (DXY) reached a level not seen since June 2002. The strengthening of the US currency was mainly due to concerns about rising interest rates, energy problems in Europe and the slowdown in the global economy.
At around 3pm, the DXY rose 0.68% to 110.25, its highest level since June 2002. The index gained ground against the basket of currencies after a report on the US services sector in August reinforced the opinion that the economy is not in a recession and reaffirms the possibility of a faster increase in the Federal Reserve’s reference rate.
“People recognize that the US economy is slowing down, but it’s still the least ugly of the contest,” said Marc Chandler of Bannockburn Global Forex. While the dollar’s path of least resistance is to the upside, its strength will be challenged next week when the US Consumer Price Index for August is released, Chandler said.
On the day of this Tuesday, the currencies that presented the greatest depreciation were the Brazilian real, with 1.87%; the Japanese yen, with 1.54%; the Chilean peso, with 1.25%; the New Zealand dollar, with 0.92%; the Australian dollar, with 0.91%; the South African rand, with 0.78%; the Mexican peso, with 0.71% and the Romanian lei, with 0.62%.
Sterling and the euro both attempted to recover from multi-year lows hit on Monday against the dollar. The British currency advanced 0.04%, to 1.1528 dollars, and the community one gave up 0.26%, to 0.99 dollars.
“The publication in the United States of the ISM of the services sector that rose from 56.7 in July to 56.9 points in August, exceeding market expectations and advancing for the second consecutive month. The signs that the services sector in the United States remains strong reinforces the expectation that the Federal Reserve will continue to raise its interest rate at an aggressive pace of 75 basis points on September 21″, said Gabriela Siller, director of economic analysis of Basic Bank.
The strengthening of the dollar reduces the demand for commodities by making them less accessible to investors who have another currency, while higher rates increase the opportunity costs of holding investments in non-interest-bearing commodities. So gold closed down 0.57%.
The war in Ukraine and the implications for the European economy are back in the spotlight after Russia announced it would stop the flow of natural gas through its Nord Stream 1 pipeline in response to sanctions, further heightening the environment. uncertainty in the foreign exchange and capital markets.
Outlook for the Mexican Peso
CI Banco analysts said that some factors such as the situation of the confinements in China, the monetary policy decision in Europe and its energy crisis, may be elements that translate into volatility, but this would be temporary. For now, attention turns entirely to the US inflation report. If a lower level is reported next week, the peso could trade below 19.90 units per dollar.
This Tuesday, the peso closed at 20.1448 units per dollar, a depreciation of 0.71%, which means its second consecutive fall, according to data from the Bank of Mexico (Banxico).
“The dollar trades with significant gains both against the peso and against the world’s major currencies. Given the macroeconomic data, a greater outlook for inflationary risk and greater expectations of a 75 basis point hike from the Fed, the DXY trades above 110 points. Greater upward sensitivity could be expected,” said Moisés Romano, an analyst at Masari.
With information from Reuters
