USD: A balance of political power

The DXY dollar index was a mixed bag last week, reflecting investor uncertainty as they digest recent developments in the political realm. Ambiguity from the new administration continues to reign over the dollar, and with President Trump’s twitter feed going full-speed, the trend is unlikely to abate any time soon. Investors will walk the line between expectations of protectionist policies, which are net USD negative, counterbalanced by positive views on tax reform.

EUR: “Could collapse”, emphasis on the “could”

The euro fell on Thursday when Trump’s prospective pick for ambassador to the EU Ted Malloch stole headlines last week after telling the BBC that the euro could collapse in the next 18 months. “The one thing I would do in 2017 is short the euro” Malloch said, emphasizing his conviction on the view. Not only is this a bold statement in its own right, but from the man tagged as the favored pick to be ambassador to the currency block it is especially grabbing.

A call for the complete collapse of the euro is a gross over-sell, and with the ever-changing nature of currency markets the dynamics shaping rates right now can be entirely re-made in a matter of months. The euro recovered losses on Friday, but remains choppy amid large and uncertain variables ahead.

GBP: Pound boosted by UK-US relations

US – UK relations are blossoming. Prime Minister Theresa May was the first world leader to meet with the new US president to discuss a trade deal between the two nations. While in reality a trade deal will probably take more than a year to come to fruition, the meeting underscores the “special relationship” between America and Britain – a nice feather in May’s cap as Brexit negotiations loom.

The pound finished last week on a high note, taking gains against most major currencies. Sterling was up more than a percent against USD, EUR, JPY, and AUD week-on-week. But all good things must come to an end, and cable is headed toward the first three-day fall against the dollar this year.

This week will be an important one for GBP, crowned by the Bank of England’s first policy decision meeting this year. Although the BoE is expected to take a more positive tone towards the economic outlook, the myriad uncertainties over Brexit developments may keep optimism in currency markets parred.

CAD: Trump greenlights pipeline, CAD is loving it

The Keystone and Dakota pipelines are a go, according to President Trump. Debate on whether the pipeline will be beneficial to Canada are rampant, but they did not bleed into sentiment in the currency markets. The Canadian dollar gained over a cent and a half against the USD on the news, and even against a backdrop of volatile oil prices, CAD maintained stability throughout the rest of the week.

MXN: Strong and steady

The Mexican peso continues to extend gains from last week, up over 4% against the USD after diplomatic relations with Mexico erupted. Mexican President Enrique Peña Nieto pushed back to Trump’s rallying cry to “build the wall”, saying “Mexico won’t pay for any wall” and that’s that. The tensions continues to build, with both leaders volleying threats back and forth, peaking when Nieto cancelled his upcoming visit to meet with President Trump in Washington. Trump has since thrown out threats to levy a 20% tax on all Mexican imports to fund construction of the wall. With a trade war looming, we expect the dollar-peso trade to be exposed to continued volatility.