The US dollar shows a relatively stable performance ahead of the release of the Federal Open Market Committee (FOMC) minutes, an event closely monitored by investors to assess additional clues about the trajectory of monetary policy.
Although no drastic changes are expected following the release of these documents, any sign of a more hawkish tone from the Federal Reserve could support the dollar.
Conversely, signals of a more dovish approach could provide relief to emerging market currencies, particularly in Latin America, which have recently been at the mercy of uncertainty and pressures from geopolitical and trade events.
Trade tensions, now driven by President Donald Trump’s proposal to impose a 25% tariff on cars, semiconductors, and pharmaceuticals, have generated additional uncertainty in the markets.
The Mexican peso, for example, saw a 0.8% rise in the USD/MXN rate, reflecting concerns about potential repercussions for the automotive industry and global demand. Meanwhile, the possibility of retaliation from China and the European Union maintains a high-risk environment, with potentially adverse consequences for emerging market currencies.
On the domestic front in the United States, the January 2025 building permits report shows a total of 1,483,000 seasonally adjusted applications, just 0.1% above the previous month, suggesting relatively stable but fragile demand. However, the 1.7% year-over-year decline and the 9.8% drop in housing starts highlight builders’ caution, reflecting concerns about the strength of future demand and the impact of higher costs.
In the geopolitical sphere, talks with Russia over a potential ceasefire have injected a slight optimism into the markets, as a favorable diplomatic outcome could boost riskier assets. However, any setback in these negotiations would reinforce the perception of uncertainty and risk aversion and could be a supportive factor for USD demand.
Given this scenario, it is essential for investors to stay vigilant to signals emerging from both trade tensions and the geopolitical front. As seen recently, every new tariff announcement, diplomatic response, or macroeconomic variable can alter the exchange rate of the dollar and emerging market currencies, placing the market in a constant state of alert. In the coming months, the evolution of these factors will be crucial in shaping the direction of Latin American currencies and global risk appetite.
