Peso on the US-Mexico agreement, collapse of the euro

LONDON (Reuters) – The Mexican peso rose more than 2 percent on Monday after the United States and Mexico reached a deal on migration to avoid a tariff war, bolstering renewed appetite for investor risk, which has boosted the yen lower.

Investors in foreign currencies have rushed for the security of the Japanese yen in recent weeks after US President Donald Trump threatened to lower tariffs on Mexico and undermined investor confidence.

On Monday, the dollar rallied when investors dropped the yen and the euro. Some badysts have said that the US currency should rebound when investors have realized that the reduction in interest rates of the Federal Reserve was deemed too accommodating.

The dollar index rose 0.3% to 96.824. Against the euro, it rose 0.3% to 1 1304 USD. The single currency was also put under pressure after sources told Reuters that European Central Bank policymakers were ready to cut rates if economic growth weakened.

The Mexican peso rose more than 2% to 19.2275 pesos per dollar after trading resumed for the first time following Friday's migration deal.

Chart: World exchange rates in 2019 tmsnrt.rs/2egbfVh

Trump had threatened to impose a 5% tariff on all Mexican goods as of Monday if Mexico did not further commit to tightening its borders.

"Although we should expect" risky "deals early this week, we are very cautious about the sustainability of any risk appetite recovery," said a MUFG badyst. in a note citing the caution of Mexico's support to the transaction. Trump details and concerns can push other trade disputes.

The yen dropped 0.4% to 108.65 after hitting its lowest level since the end of May, though it remains 3.3% higher than its April level.

Bart Wakabayashi, director of the Tokyo Branch at State Street Bank, said the ramping up of the US-Mexico deal "was likely to lead to optimism with China and hope for some progress in this country".

"We had trade talks with the EU, with Japan. Let's hope they start turning to the positive story, "he said.

The yuan reached its lowest level since the end of November, after weak import statistics, which raised concerns about slowing domestic demand in China. The offshore rate was slightly lower, at 6.9488 yuan to the dollar, but remained above Friday's low.

The euro is far from the two and a half month highs reached on Friday following an ECB meeting that investors perceived as less accommodating than expected.

As some had expected, the ECB has not hinted that rates would be lowered in the face of deteriorating economic prospects, saying rates would remain "at their current level" until mid-2009. -2020.

But on Sunday, two sources told Reuters that policymakers were ready to lower the ECB's key rate again if economic growth weakened and a strong euro hurt the bloc.

The pound sterling was caught up by the dollar's recovery, losing 0.2% to 1.2709 USD.