The U.S. Dollar finally hit the brakes after a few days of rallying against most counterparts. Oil prices went up to levels last seen October 2014, which boosted petro-currencies such as NOK, SEK, CAD, and even the Mexican Peso.
This developed as a result of market reaction to news of the U.S. deciding to forego participating in the Iran Nuclear Deal. Sanctions that could affect oil and commodity markets, especially since it’ll put caps on Iranian exports, are already influencing futures and it is benefitting most currencies against the greenback.
Economically, the U.S. remains in good vibes despite Producer Price Index figures that were released this morning and revealed a slower level growth than expected at 0.1% under the 0.2% estimate. This does not reflect too poorly on the current situation, so the dollar is unlikely to see much against it in terms of indicators, but rather on geopolitical headlines. CPI, another inflationary measure, will be out tomorrow as we face the biggest risk-event of the week with the Bank of England meeting.
The Euro is not close to having a revival, but it did manage to prevent further losses to the U.S. Dollar after yesterday’s busy news day. However, any potential for Euro strengthening was cut off by unexpected contractions in Industrial Production in France and Retail sales in Italy.
It seems like the Europeans are going to have to manage adjusting to a much weaker currency for the second quarter of the year and possibly beyond that. Not only is Italy facing ongoing economic struggles, but the parties of parliament like the Five Star Movement and the Northern League refuse to accept the idea of having a government under a non-partisan Prime Minister. This lack of political productivity is also a problem for Euro long-term.
The Mexican Peso and Canadian Dollar both emerged from multi-month lows against the buck after oil prices reached high levels based on predictions that Iran output will lower the availability of high production out of the Middle East. Also, Iran’s new stance, after being told sanctions will be imposed again against them, makes many investors nervous that civil war conflicts like Syria and Yemen will only get worse.
Nevertheless, NAFTA is the next big deal that President Trump will have to make a decision on in the next week and a half and our neighbors have reasons for concern as no progress has been made on agricultural terms or other big items. Oil may prove to be a temporary relief for MXN and CAD, but we shall see if the trade pact is abandoned and brings turmoil to these currencies.