The U.S. dollar is in recovery mode this morning, after falling across the board on Friday. The dollar came under significant pressure last week after non-farm payrolls failed to meet expectations and painted a dour outlook for the labor market. Nevertheless, traders continue to price in a rate hike by the Fed later this month. It is now likely, however, that the commentary following the decision could take on a dovish tone and make it less likely the Fed will raise rates again in 2017.
The price of oil jumped higher over the weekend over a diplomatic spat in the Middle East. Saudi Arabia, United Arab Emirates, Egypt and Bahrain cut diplomatic ties with Qatar for its ties to Iran and Islamist groups. It is unclear, however, whether the dispute will hinder output from the region.
The economic calendar for the week is rather light, so expect geopolitical events to dominate trade. Later this morning, PMI services index and ISM non-manufacturing will cross the wires. Most traders will then turn their attention to Thursday for the elections in the United Kingdom and the release of the European Central Bank’s policy decision.
The Mexican peso was the biggest winner overnight, gaining over 1.5% against the U.S. dollar as President Enrique Pena Nieto’s political party won the governorship of the country’s biggest state. The peso surged to its strongest level in seven months as traders view the weekend’s win as sign the governing party will retain control after next year’s presidential election.
After reaching historic lows versus the U.S. dollar, the peso has staged a significant comeback as the worst-case scenario for the North American Free Trade Agreement has not materialized. Indeed, the peso has gained 13% in 2017, the second best performer.
The British pound experienced a sharp sell-off before quickly recovering all of those losses following the apparent terrorist attack on Saturday night. Recent polls have shown a tightening race in recent weeks before this week’s snap election. A hung parliament would likely weigh on the sterling and complicate Brexit negotiations with the European Union later this summer. If opinion polls are to be believed, the Conservative Party will hold on to a slight majority. Election results will start to pour in on Thursday evening on the East coast, so expect volatile trading on Friday.