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Dollar Strikes 16-Month High; Euro FX Down in the Dumps; Mexican Peso Falls Sharply


Developments outside the US allowed for the dollar to appreciate against a basket of currencies to a sixteen-month high on Wednesday. The ICE-maintained US dollar Index, which provides a weighted-mean measure of the greenback’s value against the euro, British pound, Swiss franc, Canadian dollar, Japanese yen and Swedish krona, traded above 97.0 for the second time this week, and at 97.11 for the first time since June 2017.

Barring a calamity during the New York session, the dollar will record a seventh consecutive month of gains on Wednesday (this being the final day of October). The greenback has benefitted this year from a flight to safety amid troubles in emerging markets and from the relative stability and strength offered by the US economy in comparison with others globally.

USD to JPY - 3 month chart to 31 Oct
USD/JPY - 3 month chart to 31 Oct

In Asia, Wednesday’s dovish remarks from the Bank of Japan sparked a midweek rally in USD/JPY to a three-week high of 113.35, and USD/CNY traded at a ten-year high of 6.9747 after the release of China’s Purchasing Managers Index, which fell this month to 50.2—the lowest reading since the summer of 2016.

The entirety of European FX continues to be bogged down amid uncertainty over Brexit and question marks surrounding economic activity and investment.

Although the British pound gathered enough strength to rally away from ten-week lows, its outlook remains uncertain given the lack of progress on Brexit negotiations. At the time of this report, the pound had recovered to buy 1.277 dollars and 1.125 euros.

GBP to USD - 3 month chart to 31 Oct
GBP/USD - 3 month chart to 31 Oct

The euro itself trades back in the low 1.13s against the dollar and a seventeen-month low was confirmed for the Swiss franc with the break of July’s extreme at 0.993 dollars.

The Norwegian krone and Swedish krona are also under pressure at respective dollar rates of 8.44 and 9.20.

The Australian and New Zealand dollar currencies remain steady against the US dollar, albeit near long-term lows, and have stormed ahead against the aforementioned currencies of Europe. The kiwi, for example, was buying as many as 0.516 pounds late on Tuesday—more than at any time since late August. It remains in the mid-0.65s against the US dollar.

In Latin America, the Mexican peso has slumped to a four-month low following this week’s referendum on a $13 billion airport project, which will now be scrapped. A 3.5 percent loss in value on Monday marked one of the peso’s worst days in recent years and it continues to fall, with rates early on Wednesday above 20.20 per dollar.

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