The U.S. Dollar is trading in mostly familiar ranges while tilting downward against some of its major peers as the U.S. trade dispute with China continues to affect other markets.
Overview
Trade remains the main issue at hand for global markets as the two largest economies look to remain in friction. While the U.S. has proposed blanket tariff increases, China’s leaders have been strategic about cutting off shipping and other crucial lines of commerce, such as soybean purchases. The moves have been defended as part of retaliation from earlier fallout in September.
We are now in the third week of the U.S. government shutdown, which is keeping us from seeing measures from the Bureau of Labor Statistics. As far as monetary policy news, yesterday Fed officials had a chance to chime in during an economic conference in which Chairman Jerome Powell explained they may be ready to stop the process of quantitative tightening, referring to reducing their bonds held on the balance sheet. It represents a signal towards easing since the Fed is looking to alleviate tight financial conditions a bit after also lowering interest rates. It is worth noting that Gold continues to surge and hit fresh new record highs.
What to Watch This Week…
- Compliance Webinar – October 23rd @ 4pm EST – Save your seat
- Monex USA Online is always open
EUR ⇑
The Euro is erasing losses from last week as it returns to higher ground based on the idea that France may get a breather. Although no clear plans to achieve a budget have been set, the fact the Prime Minister Sebastien Lecornu delayed reforms to the pension structure until the 2027 elections gives room to prioritize other items and find common ground within the parliament. The Euro has been accompanied by economic data pointing out somewhat stubborn inflation and mixed figures. Anything on the positive may boost it rapidly to levels seen at the start of August.
MXN ⇑
The Mexican Peso also jumped a bit primarily driven by “dovish” comments from the head of the U.S. Fed. Powell went on during his discussion about how the labor sector is most certainly weakening and this helped boost the chances of 50 basis points being reduced by year’s end. It is possible that USD/MXN run into central bank policy divergence down the line with the central bank in Mexico, Banxico, potentially being more careful about exacerbating inflation and thus choosing to pause its interest rate cuts. The financial authority has been slashing a benchmark interest rate that once floated around 10.0%, now 7.5%, in order to reduce inflation from the post-pandemic period. If the two central banks differ in combatting price growth, MXN has room to appreciate.
