Dollar Rallies Against Peso Amid Nafta Fears

The dollar rallied against the Mexican peso Monday as President Donald Trump doubled down on threats to pull the U.S. from the North American Free Trade Agreement.

The dollar rose 1.5% against the Mexican currency in New York trading to 17.87 pesos. The greenback gained 0.2% against the Canadian dollar to C$1.25.

Analysts said the Mexican and Canadian currencies were hurt by comments made Sunday by Mr. Trump. In a string of tweets, Mr. Trump said Mexico and Canada are "being very difficult" in the NAFTA renegotiation process and said the U.S. "may have to terminate" the deal.

The peso plunged to record lows earlier in the year as investors worried Mr. Trump's threats to pull the U.S. out of the trade deal would hurt the Mexican economy. The White House later appeared to soften its tone and shifted its focus to renegotiating the deal, helping send the peso up more than 15% against the dollar this year.

Meanwhile, investors continue to assess the outlook for higher U.S. interest rates after a speech last week by Federal Reserve Chairwoman Janet Yellen disappointed some investors by avoiding new clues on the prospect for policy-tightening.

"As a result of the lack of detail...related to the outlook for U.S. lending rates or the Fed's plans to begin scaling back its massive balance sheet, investors saw little reason to back the broadly heavier U.S. dollar," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange.

The WSJ Dollar Index, which measures the U.S. currency against 16 others, fell 0.2% Monday to 85.44, its lowest level since August.

Investors see only a 36% chance that the Fed sticks to its projection for another rate-increase this year, CME Group data shows. Expectations that U.S. rates will remain lower have weighed on the dollar this year by encouraging investors to buy higher-yielding currencies.

Important economic data expected later in the week -- including U.S. manufacturing, hiring and gross-domestic product reports -- could bolster the Fed's case for raising rates and support the dollar, analysts say.

Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com

(END) Dow Jones Newswires

August 28, 2017 18:11 ET (22:11 GMT)