Dollar Slips as Trump Inaugurated; Mexican Peso Surges 1.9%

  • Muted FX flows and thin conditions as risk mostly shunned
  • ‘America first,’ rebuild promises skip specifics, lift EMFX

The dollar was trading at fresh lows for the session as a surge in the Mexican peso around the inauguration ceremonies spilled over into the broader dollar tone; peso gains may be seen as ironic at a time when the currency was expected to be vulnerable to renewed protectionist rhetoric from Trump.

The dollar fall began late morning as the peso surged in thin conditions, with local and U.S. traders confirming that there had been no intervention by Banxico to rein in the recently slumping currency, which traded to a record low at 22.0385 against the dollar just last week. The dollar fell against the peso by as much as 1.9 percent to 21.5286 with traders explaining that short peso positioning had simply become too large to maintain.

At the same time, Trump’s inaugural speech was short on specifics on fiscal spending measures or tax cuts that are seen as key ingredients to bolstering the economy, as the new president vowed to do in a speech that promised “America first.” Protests in Washington also added to the softer dollar tone at a time when few traders want to be involved, a trader in Toronto said.

  • FX flows were mostly muted Friday as traders expressed little appetite to take on fresh risk amid the U.S. leadership transition; USD is lower vs most G-10 and emerging market FX peers while losing ~0.4% as measured by the Bloomberg dollar index
  • EUR/USD recently touched a fresh high for the session at 1.0701; EUR still capped by offers at 1.0700, some of which may be tied to large option expiries at that strike which roll off next week
  • Earlier, EUR fell to a fresh low at 1.0625 before bids ahead of 1.0615 cushioned; pair may find further bids under 1.0585 and tech support from Thursday’s low at 1.0589
  • USD/JPY trading close to a fresh low of ~114.29 as UST yields fell from their session highs
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