Daily Market Update

U.S. Dollar Concedes to Pound on Brexit Progress; Busy Week Ahead

March 19, 2018

The U.S. Dollar suffered major losses against the British Pound as progress was made over the weekend in regards to Brexit.

USD

Chief negotiators David Davis and European Union’s Michel Barnier are meeting in Brussels this week to iron out the details of a trade agreement while already having settled on a transition period that keeps all laws the same until 2020.

We shall see if this materializes into more than just a political promise and becomes legally binding. Overall, the U.S. dollar has settled into familiar ranges as anticipation grows over busy week ahead.

There are no items scheduled for today, but surprises have been common this year. FOMC meeting on Wednesday and the Bank of England’s announcement on Thursday are the main headlines for the week accompanied by a slew of inflationary and spending data. We see the Fed hiking and giving guidance over a potential four-hike total for the year. Tightening from the BOE is unlikely.

 

MXN

The Mexican Peso is down by over 1.0% since the start of last week as negative reaction abounded from the departure of Rex Tillerson as Secretary of State and the potential of weakening in relations from a “trade-war.” NAFTA is already under revamp talks that have created anxiety for the neighboring tender, but instability in the U.S.’s use of soft power though the State Department offers reasons for doubting progress in any re-negotiations.

Additionally, recent polls show presidential candidate Andres Manuel Lopez Obrador in the lead, affecting the Peso since his policy ideas are considered detrimental to business and trade. We believe only good news on trade can help Peso as the dollar is expected to advance from the interest rate outlook.

 

GBP

The Pound rose by close to 1.0% as a result of good news on the Brexit front. Weeks of ugly headlines led to a summit in Brussels this week where the chief negotiators are already off to a positive start. Laws and regulations under which commerce and other daily functions are determined will remain intact until 2020 in order for businesses to better transition once the U.K. fully leaves.

The news is seen as a great step because of the lack of good developments recently. There is nothing legally binding yet and we foresee trouble ahead with domestic British politics the way they have been. Sterling may be up for a good week, but obstacles could arise as talks continue causing wild swings.

 

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