The U.S. Dollar is mostly unchanged across the board with little movement as the globe digests a week with plenty of focus on what may come from changes of the guard this year.
Overview
Speculation of what a Trump administration will bring to the table that may affect trade as we know it has been fueling moves in global exchanges but has not provided clearer guidance on what could come for the U.S. Dollar. There are mixed feelings about intervening in FX or pushing for policies that may weaken the dollar for the purpose of being more competitive against exports from China and elsewhere in Asia.
Proposals to slash corporate taxes while pushing for heavier domestic spending may, in fact, cause pressure on the Fed as inflation is stimulated by those measures. If interest rates cannot be reduced with price growth a challenge, the Buck may not weaken as intended, especially with expected central bank policy divergence with the rest of the globe looking to stimulate. The week will close out with a few Fed officials with a chance to give their thoughts, but the needle may not move much from where we are.
EUR ⇑
The Euro remained mostly unchanged as this morning, we came to a decision by the European Central Bank after the meeting. The ECB chose not to rescue borrowing costs at this time and explained that the 2.0% inflationary target is a goal they are hoping to achieve. Natural gas and other items besides energy have made the inflationary situation in Europe more stubborn than in the U.S. Officials did not hide their thoughts in explaining that the approach will stay “sufficiently restrictive” for as long as needed to make sure inflation is tamed.
MXN ⇓
The Mexican Peso has been the biggest loser lately, down by over half a percent this morning as its allure is fading. MXN value is not being affected by any fundamentals especially in a week dry of any data, but the carry-trade value that made it an attractive trade against Japanese Yen is fading. LATAM is seeing some funds drawn out of the region to invest in Japan and other countries where interest rates are expected to be on the way up. As the bank of Japan intervenes to strengthen JPY and looks to increase borrowing costs, the carry trade has lost appeal as you are no longer borrowing at low costs down the line. Meanwhile, if Mexico begins to stumble and has to worry about disturbance in trading from a Trump administration, Banxico is expected to become more stimulus-driven.
