FX market rattled as Trump slaps tariffs on Mexico
The Mexican Peso (MXN) was the latest currency to be rocked by Donald Trump’s protectionist policies overnight on Friday.
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rump launched a surprise offensive on Mexican imports, unexpectedly stating that he will be slapping 5% tariffs on all Mexican imports into the US in June, until illegal immigration is stopped. The move is made all the more surprising given the recent striking of the US-Mexico-Canada Agreement (USMCA) in late last year, which ensures that the imposition of tariffs between the three countries is off limits. It is likely that Trump will once again claim the matter is a measure to protect national security, as allowed by the International Emergency Economic Powers Act (IEEPA).

MXN reacted in much the same fashion as we’ve seen in the Chinese Yuan in recent weeks to Trump tariff threats, sliding by over 2% to its weakest position so far this year. Uncertainty over global trade relations has arguably been the single biggest driver in the foreign exchange markets this month, with last night’s announcement continuing to send shockwaves through all financial markets.

The safe-haven Japanese Yen strengthened sharply again, rallying below the 109 mark. Meanwhile, EUR/USD actually gained ground, with investors possibly of the view that a worsening in trade relations with Mexico would damage the US economy more than the China trade spat, given that Mexico is the largest destination for US exports.

Pound hits fresh lows on rising ‘no deal’ chances



The overbearing weight of Brexit continued to send Sterling lower yesterday, with the UK currency briefly touching another near five month low versus the greenback.

There wasn’t any major catalyst for the move, with no significant headlines to report. Markets are,however, growing increasingly concerned by the day that a Boris Johnson led Conservative Party could be driving the UK towards a ‘no deal’ Brexit come the end of October. Bookmakers odds are now showing around a 30% implied probability that the UK leaves the EU without a deal in place, around twice the level it was a matter of weeks ago.

On the data front, yesterday’s US growth numbers came in unrevised and had no impact on the FX market. A number of economic releases are on the docket for today, with the most significant probably being US consumer spending & income figures and German inflation numbers. The latter will be particularly important given it’s potential barring on the tone of next week’s European Central Bank meeting.
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