Overview and Context
On the morning of this Wednesday, the Mexican peso was slightly advancing as investors were digesting a report on the health of the U.S. labor market, anticipating a reduced liquidity session due to Christmas festivities.
The Mexican currency was trading at 17.8844 units per greenback, with a marginal gain of 0.06%, as the dollar index fell to a two-and-a-half-month low against a basket of reference currencies.
Market Expectations and Analyst Insights
Felipe Mendoza, the CEO of investment manager IMB Capital Quants, stated: “For the day, with partial U.S. stock market activity due to Christmas, we expect the peso to range narrowly between 17.80–17.95 units per dollar, with an appreciation bias if risk appetite and flows towards emerging assets remain.”
The Dollar’s Worst Year Since 2017
The U.S. dollar was declining on this Wednesday and was set for its worst annual performance since 2017, with more potential for decline as investors bet on the Federal Reserve having room to cut interest rates further next year, even as most peers seem to have concluded their easing cycle.
A robust U.S. GDP reading on Tuesday failed to shift the rate outlook, leaving investors valuing roughly two Fed cuts in 2019.
The euro and the British pound reached new three-month highs on Wednesday but remained stable at 1.180 and 1.3522 dollars, respectively.
Dollar Index at a Two-and-a-Half-Month Low
Against a basket of currencies, the dollar index fell to a two-and-a-half-month low of 97.767, on track for a 9.8% decline in the year—its most significant annual drop since 2017. Any further weakness in the final week of the year would result in its largest decline since 2003.
The dollar has experienced a tumultuous year, battered by President Donald Trump‘s chaotic tariffs earlier in 2019, causing a crisis of confidence in U.S. assets, as well as growing influence over the Fed raising concerns about its independence.
Conversely, the euro has risen more than 14% so far this year, placing it on track for its best performance since 2003.
Performance of Currencies Against Precious Metals
Most currencies have lost ground against precious metals like gold, which on this Wednesday reached a new all-time high.
Small European Currencies Outperform
The currencies of smaller European nations, often lightly indebted, have shown the best performance this year.
The dollar has lost 12% against the Norwegian krone, 13% against the Swiss franc, and 17% against the Swedish krona, which touched its lowest level since early 2022.
