Relative Yield Moves and US Dollar Gains

MUFG analyzes the continued strength of the US dollar driven by yield divergence as growth and inflation prints weaken in Europe, UK, and Japan. The report also highlights a bearish outlook for the Mexican Peso following a credit downgrade and weak Q1 GDP data.

Key Takeaways

• 1.Relative yield advantages are driving US dollar momentum as front-end yields in other G10 economies fall on weaker-than-expected data.
• 2.The Mexican Peso is facing significant downside risks following a Moody's credit rating downgrade to Baa3 and weak economic growth signals from Banxico.
• 3.Optimism for a Middle East peace deal has driven crude oil prices 4% lower, though this has had limited impact on FX compared to economic data trends.

Table of Contents

• USD: Crude oil stays lower; ex-US data turns weaker
• PESO SUPPORT FROM BANXICO POLICY RATE IN REAL TERMS POINTS TO INCREASED DOWNSIDE RISKS
• MXN: Downside risks building
• KEY RELEASES AND EVENTS

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