Dollar pulls back, Mexican peso stabilizes as investors assess trade news

The U.S. dollar slipped versus its key rivals on Tuesday, as investors assess the U.S.-Mexican trade deal that was announced by President Donald Trump on Monday. The greenback was under some modest pressure, while Mexico’s peso stabilized as investors await what’s next.

President Donald Trump announced Monday that the U.S. had reached a trade agreement with Mexico, and that he wanted to get rid of the North American Free Trade Agreement name. Canada, which is part of Nafta, hadn’t been part of the U.S.-Mexico negotiations. Trump said he would see if Canada could join the so-far bilateral deal, and that talks with Ottawa would resume soon and could lead to a separate deal.

“Any trade deal is good for capital markets; even yesterday’s U.S/Mexico ‘non-ratified’ trade announcement has been able to push U.S stocks to new records, G10 currencies and commodities to multi week highs,” wrote Dean Popplewell, vice president of market analysis at Oanda. “However, even the most bullish of investors should take heed about overreacting to what also might be the latest in an extended back-and-forth between the U.S and its trade partners.”

“Details on the bilateral deal between the US and Mexico are still sketchy, as is the status of Canada. Canadian officials will join talks today, with comment yesterday limited to Foreign Minister [Chrystia] Freeland’s remark that she was encouraged by the optimism shown by the US and Mexico. Both the US and Mexico have said the deal will go ahead bilaterally if Canada is unable to join,” wrote Adam Cole, chief currency strategist at RBC.

The ICE U.S. Dollar Index DXY, -0.22%  was down 0.1% at 94.665. The broader WSJ Dollar Index BUXX, -0.09% which measures the U.S. currency against a larger basket of rivals, little changed in negative territory at 89.08.

The dollar’s main rival, the euro EURUSD, +0.2826% was correspondingly stronger, trading at $1.1695, up from $1.1678 late Monday in New York.

One dollar last bought 18.7611 Mexican pesos USDMXN, -0.0602% little changed from 18.7659 pesos on Monday.

Meanwhile, the Canadian dollar USDCAD, -0.3085%  retained some strength against the buck, which bought C$1.2941, down from C$1.2966 late Monday.

Elsewhere, the Turkish lira USDTRY, +2.1399% investors’ favorite problem child among emerging-market currencies, trended lower. One dollar last bought 6.2206 lira compared with 6.1217 lira late Monday in New York. After Turkey’s currency crisis stole the limelight last month — caused in part by rising interest rates in the U.S. and a strong dollar, its reliance on foreign funding and unfavorable economic conditions — little has been done to address the country’s problems, market participants said. This has led the lira to continue on its downward path.

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