FX market outlook

FX market outlook

US dollar recovers a little ahead of key Trump conference but Mexican peso hits record low.

The US dollar recovered some ground during Wednesday’s Asian trading, but it had given back some of those gains by the end of the session.  The dollar index was around the 102 level, having traded as high as 102.20.  Currency markets were relatively quiet ahead of a press conference by President-elect Donald Trump, where he is expected to outline some of his economic policies.
There is considerable uncertainty about what economic policies the new President will adopt.  On the positive side, fiscal stimulus in the form of tax cuts and infrastructure spending could boost economic growth in the US and around the world.  This prospect has helped the dollar to rally since the November US election.  On the other hand, a combative stance versus China with protectionist threats etc. could be a negative.  US policy towards its NAFTA neighbours could also change, with Mexico getting hit especially hard.  The Mexican peso hit a new record low of 21.84 the previous day on fears that the new President will take a punitive stance towards US companies that invest in Mexico, as the recent example of Trump dissuading Ford from building a new plant in the country showed.
Another emerging currency that hit a record low was the Turkish lira as dollar / lira reached 3.89.  The government there is battling enemies such as ISIS and Kurdish insurgent groups that are staging terrorist attacks while there has been heavy-handed government intervention in economic and political life since the July coup of last year.
In majors’ trading, euro / dollar was around 1.0550 while dollar / yen was near the 116 level.  Pound / dollar made a move for 1.22 earlier during the session but this petered out at 1.2199 and the pair came back to 1.2165.
The Australian dollar managed to buck the overall trend and post some gains against the US dollar as it traded at 0.7383.  Strong iron ore prices were a supportive factor for the aussie.  In other commodities, gold continued its grind higher to $1190 an ounce – a six-week high, whereas crude oil was around $51 a barrel.
Looking ahead, there will be little in the way of data to distract market participants from the 1800 GMT press conference by the US President elect.  UK industrial production and trade balance for November will be watched, although given that sterling mostly reacts to Brexit-related political developments, the figures may not help or hurt the pound much.  US weekly energy inventories are also expected during the US session.