Daily
FX Update

Trump unexpectedly hits Mexico with tariffs, driving markets to risk-off mode and lifting Japanese yen and US treasuries as safe havens

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Donald Trump unexpectedly hit Mexico with 5% tariffs to begin June 10th and rise to 25% by October 1st. They will remain in place until illegal immigrants are stopped from entering the US through Mexico. Investors shifted to risk-off mode, lifting demand for safe haven assets - the dollar, Japanese yen, gold, and US and German bonds.

“Don’t let yesterday take up too much of today.”
Will Rogers, social commentator
  • FX Rates
    May 31, 2019

    Rates are not real time. Rates are today's indicative mid-market rates as of time of publishing, which may vary. Please contact SVB for a current quote.


  • USD

    Save the Japanese yen, the dollar made broad gains following Trump’s announcement of tariffs on Mexican goods. The USD/MXN gapped higher by 1% and is trading at new highs near 19.82 for the year. Safe haven demand increased for US Treasuries, pushing 10-year yields lower by 4 bps to 2.15%.

    GBP

    The UK pound slipped below $1.26 within the overall risk-off shift in the market. In Britain, nearly a dozen candidates are vying for the job of prime minister. Brexiteer Boris Johnson is still the odds-on favorite, increasing the likelihood of a ‘hard’ Brexit, and weakening the pound.

    EUR

    The euro moved little against the dollar in response to Trump’s Mexican tariff announcement, although safe haven demand for German bonds pushed yields to record negative lows at minus 0.21%. Also, German inflation slowed to 1.3%, its weakest pace in more than a year. The ECB meets in two days to set policy and publish their updated economic projections.

    CAD

    Risk-off trading pushed USD/CAD back above 1.35. Canada’s Q1 GDP growth of 0.4% missed expectations of 0.7%, exports fell 4.1% in Q1 from +0.3% in the previous quarter, and imports rose 7.7% compared to -0.7%.

    ASIA/PACIFIC

    The Japanese yen gained 0.75% versus the dollar, as safe haven demand increased following Trump’s surprise announcement of Mexican trade tariffs. The USD/JPY dropped under 109, its lowest level since January 3rd when 107.70 traded.

    Unexpectedly weak manufacturing PMI out of China pushed the CNY slightly lower, as did broad risk-off trading. It continues to trade within a 6.88-6.92 range in place over the last two weeks.

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About the Author

Scott Petruska is Chief Currency Strategist and senior advisor for Silicon Valley Bank’s global financial services group, and is based in Boston, MA. He advises clients on currency and interest rate hedging strategies, and helps them with other aspects of global banking. He regularly writes blogs on topics covering the global financial markets, conducts client seminars and webinars, and speaks at regional financial conferences.

Petruska has more than 30 years experience in the currency and interest rate markets, and has lived and worked in Boston, Chicago, New York City, Singapore and Tokyo. Prior to joining SVB in 2009, he worked at several large international financial institutions, including National Westminster Bank, Irving Trust, Bank of New York, State Street Bank and Commerce Bank. He has been an institutional trader, product developer, analyst, salesperson and advisor.

Petruska has been awarded several professional designations, including the CFA (Chartered Financial Analyst), FRM (Financial Risk Manager) and CMT (Certified Market Technician). He earned his undergraduate degree in Finance & Banking from the University of Wisconsin.

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