The U.S. Dollar’s fortunes have flipped today with weakening against most currency pairs and Mexican Peso being the exception as tariffs talk have increased volatility for our North American neighbors.
Overview
Indeed, the Trump agenda looking at adding costs to products being brought into America from major trading partners in Canada, Mexico, as well as China have markets wondering about future guidance. If inflationary pressures are to arrive because of tariffs and the likelihood of retaliation, how will central banks behave to alleviate financial concerns?
Experts are making headlines by explaining that raising tariffs to 25.0% on Mexico alone could erase percentage points quickly from Gross Domestic Product growth. In the U.S., things seem to be fine with Q3 numbers this morning showing a 2.8% pace of growth in its second revision as expected. October Retail Sales and Durable Goods Orders did come in a bit lower than estimated, but overall, the data looks solid for the U.S. economy.
On the other side of the Atlantic, the troubled Middle East region is getting some good news as Israel and Lebanese-based group Hezbollah managed to negotiate a ceasefire. The Buck thus dwindled as the safe-haven appeal faded a bit. Currently, USD is at its lowest value for the week after snapping an eight-week run of sustained gains across all tenders. With markets shut down for Thanksgiving Thursday, we look to Friday’s likely slower activity with a few data points outside the U.S. possibly moving the needle.
What to Watch This Week…
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EUR ⇑
The Euro is trying to keep its winnings this week after overcoming its weakest level against the Buck in two years. The resurgence has been due to focus on outlooks that have the Euro-zone growing in coming years. Additionally, some “hawkish” sentiment was exuded by European Central Bank board member Isabel Schnabel who explained that the ECB should not be cutting interest rates too far. France meanwhile is going through some tough times as its bonds are now considered risky because there is a lack of faith in the government’s ability to pass a feasible budget for next year. The political havoc there could derail the shared currency a bit.
MXN ⇓
The Mexican Peso is down to its weakest levels since August 2022 as the idea of tariffs to come has sparked concerns that cross-border trade will become unaffordable in some sectors. The proposal of 25.0% seems like a potential starting point for negotiations, but the Mexican economy could face major headwinds if friction is not resolved. Mexico’s President Claudia Sheinbaum addressed the issue and stated that she would be primarily looking to cooperate where there is room to cooperate and sent a letter to President-elect Donald Trump hoping it leads to warmer discussions.
