Daily Market Update

Peso Falls to Yearly Low; Sterling Surges

June 05, 2018

The Bloomberg Dollar Index inched higher and touched a one-week high as the greenback exerted strength over its North American counterparts.

USD

The Mexican peso fell for a fourth straight day and touched the weakest level in more than a year on concern the NAFTA trade pact with the U.S. won’t be approved by Congress before 2019. Senate Majority Whip Cornyn said yesterday that the deadline to approve has passed. Separately, Reuters is reporting that Mexico will impose a 20% tariff on U.S. pork imports in retaliation to U.S. tariffs, heightening tensions.

The greenback also flexed its muscle against the Aussie and New Zealand dollars. Australia’s current-account deficit widened more than economists’ forecast and the central bank kept rates on hold.

Domestically, Markit’s service PMI and ISM Non-manufacturing will cross the wires at 9:45 and 10 a.m., respectively and may set the tone for the rest of the day.

 

EUR

The Euro was mostly quiet and appears to have settled into ranges against the U.S. dollar. Today is new Italian Prime Minister Conte’s first day on the job and he faces a confidence vote from elected officials. Italian bonds have extended their losses during Conte’s first speech in which he outlined a program of fiscal expansion. The Euro has had little reaction to the speech.

The ECB is set to meet next Thursday but will likely keep policy on hold.

 

GBP

The British sterling was the strongest performer overnight following a report that showed stronger than expected services and composite PMI’s. Services is the largest part of the U.K. economy. HIS Markit’s PMI rose to 54 in May, beating an estimate of 53. A reading above 50 shows an expansion. As a result, expectations for a Bank of England rate hike are modestly, but steadily increasing. However, ongoing Brexit troubles should limit the sterling’s gains over the medium-term.

 

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