Global Themes

The U.S. dollar steadied above three-week lows as caution reigned ahead of a double dose of summits and central bank announcements. The dollar notched small gains against the euro and sterling and meatier ones against commodity peers from Canada, Australia and New Zealand. The buck declined against its safer Japanese rival. Emerging markets were also under fire with the Mexican peso pinned near 16-month lows. Markets nervously await the outcome of a G-7 summit today in Canada and next week’s Trump-Kim summit in Singapore and meetings of the Fed and ECB. The high-stakes events wield the potential to set the tone for FX markets for weeks to come. Should trade tensions and tempers flare, markets are likely to gravitate toward ultra-safe plays like the U.S. and Japanese currencies. Canada’s jobs report today will vie for attention with the leaders’ summit in Quebec.

MXN

Mexico’s peso tumbled Friday, keeping near 16-month lows, as it bore the brunt of trade tensions with the U.S. Trade represents a major growth engine for the Mexican economy which sends the lion’s share of its export to its northern neighbor. Weaker global stocks and risk-off sentiment across markets took an added toll on higher-yielding currencies like the peso. The downtrend in the peso has it dangerously close to all-time lows, decidedly favorable levels for MXN buyers.

EUR

The euro eased below 3-week highs but its 1% rally for the week was poised for its best performance in about four months. The euro enjoyed a short covering rally as Italian political risk moderated in a material way and several ECB officials said the central bank would discuss whether to end a key stimulus program later this year. The ECB meets and issues a policy decision on June 14. Any hawkish shift in rhetoric that paves the way for the bank to end stimulus by year-end, despite headwinds related to slower growth and trade uncertainty, could allow for more short run gains for the euro.

CAD

The loonie was held hostage to uncertainty over how today’s G7 summit would go. Consequently, the Canadian currency slipped toward March lows against its U.S. peer. Weaker global stocks and oil markets put another headwind on Canada’s commodity-driven currency. If that’s not enough, the loonie will also take direction from today’s north of the border jobs report. Forecasts call for a gain of nearly 20,000 positions in May after a mild contraction in hiring in April. Unemployment is expected to remain at a 4-decade low of 5.8%. A solid outcome would bolster the case for the Bank of Canada to soon raise interest rates from 1.25%, a scenario that would ordinarily buoy the loonie, if not for heightened uncertainty over NAFTA and global trade.

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