The U.S. Dollar is settling down after major swings overnight, which took place as the world reacted to Israel's strikes on Iran.
Overview
At the time of writing, early morning headlines focused on military leaders from both countries de-escalating the situation. While some fear this is the start of a bigger conflict that could pull in other actors, markets are acting with ease after statements from Iranian leadership indicating they do not want things to worsen. The Buck climbed by 1.0% overall for the week while equities suffered, with the S&P 500 experiencing its biggest weekly drop since October.
As far as central bank policy talk is concerned, Fed members added to the new reality of a Fed willing to wait to make interest rate reductions past the Summer. Both New York Fed’s John Williams and Atlanta’s Raphael Bostic added to the hawkish commentary days after Chairman Jerome Powell. It has been discussed that rates may stay put all year long, and Williams pointed at the need to hike if inflation does not cool off. For now, USD seems a steady bet, while risk-taking can take a backseat as conflicts create further headwinds for the global growth narrative.
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EUR ⇑
The Euro has moved a lot throughout the week but has managed to get steady and escape with a bit of a gain thus far before closing. While not full of data, this week did feature indicators showing that inflationary growth has remained around a bit and that confidence surveys show people with a more optimistic outlook, particularly when it comes to the German situation. Purchasing Managers Index figures are out next week as well as Consumer confidence for the Euro-zone. While the world is in chaos, its volatility will increase.
MXN ⇓
The Mexican Peso is trading in the weakest ranges since the end of January after a major flash collapse after the news broke of Israel’s launched attack. Oil prices spiked but have now calmed significantly, and the shock is not impacting risk-aversion. As volatility has increased, Peso’s carry-trade value has lowered. The peso, at one point overnight, declined by 6.0%, its quickest deep slump in four years. We shall see how a world coping with extremely high tensions can get FX even more blurry in its guidance.
