G-10 and others return to gains post-USD rally

Much of what helped the Buck gain ground against its peers was its safe-haven role, as too much chaos spooked sentiment across markets amid a mix of pessimism over artificial intelligence spending and profitability, while tensions in the Middle East were exacerbated.

Energy costs seem scarily stuck at high levels, and outlooks are not optimistic, as new fronts have emerged in the armed conflict, cutting off crucial trade routes after Houthi forces, backing Iran, began attacking Saudi Arabian transport. Furthermore, the Russia-Ukraine front has added to the crisis, as Kazakhstan’s oil production is collapsing following attacks on ships in the Black Sea. As a result, Brent crude oil prices are above $100.00/barrel for the first time in two months.

Meanwhile, lack of faith in AI development is affecting stock exchanges on the Pacific Rim, particularly in South Korea, where the KOSPI index hit its lowest point in three months on Monday. This all has served to foster an environment in which risk aversion takes hold and safe-haven flows go to the Greenback. We shall see if domestic data points in the form of the S&P Global U.S. Composite Purchasing Managers’ Index for July and New Home Sales from June, out at 9:45 AM and 10 AM, respectively, move the needle somewhat. For now, all eyes are on the chances that talks in the background can lead toward an easing in aggression.

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MXN

The Mexican Peso is in recovery mode after dropping to its weakest value in over a week following days of turmoil and talks about tariffs. The biggest risk for the neighboring Peso is that the U.S. will try to amend many elements of the USMCA trade pact, formerly NAFTA, as the White House has announced its intent to return to levying duties on a variety of products and services. Next Thursday, we will get a chance to see how the economy is performing with the release of Gross Domestic Product figures for the second quarter of the year, Q2. The expectation is for 0.5% growth, so anything short of that number will surely weaken MXN, while a surprise in productivity could give further “Super Peso” resilience vibes amid so much uncertainty.

EUR

The Euro is trading at its weakest level in one month following a mixed reaction to the European Central Bank’s monetary policy meeting yesterday. Although the original take was that the European Central Bank seemed “hawkish” and prepared to hike interest rates sooner rather than later, some analysts doubt the Euro will have much support. Economically, the Eurozone is struggling, and worsening terms of trade are likely only to increase anxiety about growth, which has been scarce across member nations. August will be quiet and a time to adjust to data and watch developments in the war, but expectations are high, with 90.0% odds that the ECB will be ready to increase borrowing costs when it meets on September 10th. As mentioned above, access to energy is worsening, so economic projections for the Eurozone are not looking great at the moment.