Global Themes

The U.S. dollar held the lion’s share of newly minted gains in central bank-driven trade. It was fresh highs for the greenback overnight when the dollar index notched 11-month peaks and rivals from Europe, Canada and Australia descended to new multimonth lows. The same mix of bullish factors continue to underpin the buck: Favorable interest rate differentials that are expected to widen further in the months ahead and safe haven support from nagging concerns over a global trade war. Sterling recovered from seven-month lows after a bigger than expected minority of Bank of England officials voted for a rate hike. But they were outnumbered, 6-3, resulting in the BOE leaving rates at 0.50%. Mexico’s central bank today at 2 p.m. ET is expected to deliver a peso-strengthening rate hike. In addition to central bank signals, the dollar will take its cues from U.S. data on jobs and Mid-Atlantic business activity.

GBP

A hawkish minority of Bank of England officials, including its chief economist, voted for a rate from 0.50%. But most officials, in a 6-3 vote, favored leaving rates unchanged at 0.50% after the economy barely grew to begin the year. The BOE said that the economy’s lackluster start to the year was likely a blip and that it expects growth to strengthen from the second quarter. The hawkish minority of BOE officials strengthened the case for a rate hike to 0.75% by year-end and perhaps as soon as its next gathering in August. Going forward, the burden of proof will be the U.K. economy which will need to produce rate hike caliber data to put a meaningful floor under sterling.

USD

A 6-day slide against the U.S. dollar drove Canada’s currency to new one-year lows. Nafta uncertainty and nagging worries about a potential global trade war continued to weigh on the loonie. The fall in the northern dollar comes on the eve of data that, if solid, could help to shore it up. Numbers on Canadian inflation and retail sales are due Friday. Inflation is expected to rise to an annual rate of 2.5% in May from 2.2% in April. Higher inflation would bolster the odds of the Bank of Canada raising its key rate to 1.50% from 1.25% in July which would be loonie-positive, providing that trade uncertainty doesn’t stay officials’ hand.

MXN

The peso hovered around 1 ½ year lows and not far away from historically weak levels. Things could change as soon as 2 p.m. ET today when the Banco de Mexico is expected to deliver a peso-strengthening rate hike to 7.75% from 7.50%. To really jolt the peso out of its funk, which stems from U.S.-Mexico trade friction and rising U.S. interest rates, central bankers may need to raise rates in more aggressive fashion to at least 8%.

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