The U.S. Dollar is trading in mostly stronger ranges as doubts continue to increase throughout markets that the Federal Reserve will be cutting interest rates three times this year.
Overview
Without a tremendous swing upward, the Buck still managed to improve to a fresh new high overall since November, per the Bloomberg Dollar Spot Index. The MSCI Emerging Market Currency Index has been down to its weakest point since mid-January. In general, risk aversion seems to have taken hold, and the Buck is simply the chosen safe-haven asset to hold onto as world leaders and businesses accommodate the discomfort of armed conflict escalating over the weekend.
Stock indices fell by over 1.0% in Europe overnight, while the Asian session witnessed a 2.0%. By now, traders are no longer confident that the Fed will be making a cut to borrowing costs before their November meeting. As the odds of “dovish” action have dropped, the USD has had a 5-day-long streak of gains, its best since the start of the year. There is fear across equity markets that the hot expansion in that realm may be vulnerable to a crash, with surveys showing investor allocation in equities at the highest level in over two years.
March data points from this morning showed a slowdown in Housing starts while Industrial Production improved as expected and revised upward the month prior. We will be monitoring geopolitical headlines, Fed’s Jerome Powell comments later, and other Fed members will be speaking tomorrow.
What to Watch Today…
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EUR ⇓
The Euro is trading in weak ranges but has managed to stop the Buck’s rally against it after some relatively optimistic survey results. ZEW Survey Expectations for April saw a dramatic improvement from before and came in better than expected. The readings in Germany were particularly solid for the future, while there was a steady mood about the Current Situation. Chaos around the world and almost a guarantee of June cuts to interest rates by the European Central Bank make for a tough case for the shared currency, but growth and surprises on the positive across data can prevent further losses.
MXN ⇓
The Mexican Peso hit a fresh new low point, its weakest value against the Dollar since the start of March, after risk-aversion took hold of markets. Global deterioration bodes poorly for advanced emerging markets that take on pain if peace and integration are threatened. Along with other economies looking for undisturbed trade, Mexico will be rooting for reprieve in the news cycle. The peso was able to reach a zenith not seen since 2015, but its Super-Peso run looks compromised as central bank policy divergence and havoc in markets push the Buck to keep on advancing. The International Monetary Fund lifted its economic growth outlook for 2024, but it came full of warnings naturally as delicate matters developed.
