Dollar Losses Versus Pound, Mexico Peso Outweigh Gains Elsewhere

(Bloomberg) -- The dollar saw pronounced losses against the Australian dollar and the pound and the Bloomberg dollar index hit a fresh daily low as the Mexican peso gained after a weekend election.

Trading flows are subdued at the start of the week, in part due to Whit Monday holidays in many European centers. The greenback is struggling to shrug off concerns raised by Friday’s weak May employment report that have spurred doubts over the future of Federal Reserve policy beyond the June meeting, where a 25-basis-point rate hike is widely expected. Slight dollar gains against the euro and yen helped curb the losses elsewhere.

• GBP/USD reached 1.2941, its highest since May 26, erasing overnight losses incurred after Saturday’s terrorist attack in London, and is trading ~1.2908. Stop-loss buy orders were tripped above 1.2930 in the move higher, though liquidity and flows were light in the move, a trader in London said. The U.K. will hold its general election Thursday (read more here), with polls still showing a majority support the Tory party, though the lead has narrowed significantly in recent weeks. Concern is that an indecisive outcome may handicap the U.K. going into Brexit negotiations, which are set to begin with EU later this month
  • GBP will benefit most from a clear victor in the U.K. election, TD says; if Thursday’s 10pm exit polls indicate strong Conservative showing, GBP should rally immediately and volatility will be limited; anything suggesting a close race would see GBP lose ground
• MXN surged as much as 1.9%, briefly touching its highest level vs USD since Nov. 9, the day after the U.S. election, after the ruling PRI party won the race for governor in the state of Mexico, the country’s largest
• EUR/USD is trading around 1.1254, gradually recovering from NY morning low at 1.1234. The pair is weighed down by a drop in EUR/GBP as the pound’s fortunes shifted intraday. EUR/USD is also capped by offers stacked around the 1.1300 level, traders said. The common currency faces its own reckoning Thursday with an ECB meeting in Tallinn, Estonia. While some ECB officials have acknowledged recently improving economic data, the bank is not expected to change rates or policies any time soon 
• Traders will parse remarks from ECB’s Draghi for clues that the bank may be moving toward tapering its QE program, which is set to continue until the end of 2017. Speculation that the ECB may give hints on the timing of any tapering plans had bolstered the shared currency recently, but those expectations may be diminishing as the meeting approaches, a trader said

To contact the reporters on this story: Dennis Pettit in New York at dpettit5@bloomberg.net, Alexandria Arnold in Seattle at abaca3@bloomberg.net.

To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net, Greg Chang