The U.S. dollar is trading in favorable ranges, climbing by half a percent thus far this week per the Bloomberg dollar spot index, and it is also experiencing gains against emerging market currencies.
Overview
Equities had a positive correlation but increased at a much faster pace, having their best run of 2024 and reaching records across multiple exchanges.
After a week full of central bank guidance, markets feel that some easing is headed their way as officials from the Fed to the Bank of England seemed comfortable leaving plans for cuts for what is left of 2024. Following Fed Chairman Jerome Powell’s press conference and USD decline, the last 48 hours have been characterized by a Dollar rally recovering from that initial reaction Wednesday.
As markets flourish following some desired outcomes from central bankers, FX volatility will come from geopolitical tensions as well as a focus on growth while coping with the challenge of interrupted trade lines. In the aftermath of some highly speculated moves, such as the Bank of Japan leaving negative interest rates behind, we will need to see efforts toward peace as polarizing conflicts wreak havoc on regional cooperation. Over 60.0% of the world will be affected by elections, and potential drastic political changes could further blur any forecasts for what is to come. For now, the U.S. economy will keep Buck steady, while other pairs may have idiosyncratic tales.
What to Watch Today…
EUR ⇓
The Euro fell by over half a percent but managed to prevent further losses as the European Central Bank sounded confident while sticking to plans of cutting into borrowing costs at some point down the line. Christine Lagarde, ECB President, spoke to her colleagues and ECB watchers about not jumping into easing mode while the Business Outlook improved in Germany. With the Purchasing Managers Index also looking closer to expansion, the Eurozone may be able to see a reprieve from the dollar strengthening if other indicators see improvement. The path towards militarizing, adding more to defense, may also help in the long term.
MXN ⇑
The Mexican Peso has stayed afloat, currently just above the Buck for the week, even after Banxico went ahead and cut interest rates by 25 basis points. As advertised, a “hawkish cut” came after the central bank decided to trim its high-interest rate from 11.25% to 11.0% while still holding to a decent economy. Retail sales this week from January showed that, indeed, demand has slowed down from last year, yet Banxico can afford to reduce interest rates ahead of any major economic pain to develop. Unlike other regions, Mexico has held on to a healthy Gross Domestic Product. While working ever more closely with the U.S., MXN has a risk tied to politics ahead of an election in June while also having the chance for a resurgence if the economy surprises by expanding further.
