The U.S. Dollar is being pulled in different directions as two dynamics are taking over markets: the positivity behind people physically returning to work and regular activities around some parts of the globe, including California; and the renewed tension in diplomatic rhetoric between China’s and the U.S. governments.
Overview
Statements and accusations affecting cooperation between the two largest economies of the globe feels a bit like 2019 Déjà vu as risk-on sentiment fades away with finger-pointing fomenting doubt over a healthy trade partnership. The effects have been felt by those that seemed on the rise such as Euro.
On the other hand, oil prices are surging, and the buck has ceased to chip away at the value of petro-currencies. Slowly, some areas of Europe, Asia, and even here domestically will start easing some restrictions. In the United Kingdom, there is likelihood for assets and Pound to climb with reports that a plan to reopen will be settled and announced by Sunday. These developments would naturally be tied to a decline in the greenback all across the board, but the potential for further commercial disruption and dispute between U.S. and China is dampening any idea of a major economic comeback once COVID-19’s worldwide hold eases.
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EUR
The Euro fell dramatically overnight as legal decisions in Germany over quantitative easing became intertwined with the continent’s ability to work together monetarily. In a supreme court ruling with votes 7-1, the highest authority of the EU’s largest economic member nation agreed with the European Central Bank’s right to enter into the purchase of sovereign assets and found its program acceptable.
However, there was one unconstitutional mishap and the monetary policymakers must fix what is wrong in three months or risk that the German Bundesbank will not be allowed to participate in the ECB’s measures. This major event combined with the China-America relationship in question makes for a deluge in depreciation for the shared tender.
MXN
Both the Mexican Peso and the Canadian Dollar are starting to benefit from a push to rally assets as the economy opens up, with oil providing relief after weeks of damage to both neighbor currencies. The outlook for growth in Mexico is dependent on the revival of the American West as well as managing the ongoing crisis at both south and northern borders, exacerbated by medical as well as safety concerns.
Some economists see the country’s finances deteriorating into this year with some mismanagement at the top. We think the currency can return to stronger levels, but a lot has to start lining up in its favor. A more coordinated world would also help to minimize downside.
