Mexican Peso Rebounds on Nafta Reversal

The Mexican peso rebounded Thursday after the U.S. dropped its threat to withdraw from the North American Free Trade Agreement, while the dollar firmed after mixed economic data.

The peso rose 0.7% against the dollar, recovering from a 1.7% selloff on Wednesday, while the Canadian dollar was flat. It was a busy day in currency markets as investors also digested central-bank meetings in Japan and Europe, U.S. economic data and President Donald Trump's tax plan released Wednesday.

The Mexican and Canadian currencies tumbled Wednesday after reports that the Trump administration was debating a formal threat to withdraw from Nafta. After calls with Mexican and Canadian leaders on Wednesday night, the White House issued a statement saying it was no longer considering pulling out of the 23-year-old pact and instead will focus on renegotiating the agreement.

Investors have worried Mr. Trump's threats to reshape the U.S.'s trade relationships would hurt the economies of the U.S.'s major trading partners, especially developing nations.

"We continue to think concerns about protectionism are overblown, since President Trump ultimately values economic growth above all," wrote an analyst for Goldman Sachs in a research note.

The euro slid 0.4% to $1.0858, whipsawed by the European Central Bank's latest meeting. ECB President Mario Draghi said threats to the eurozone's economic recovery are diminishing, but there are as yet few signs that inflation will settle at its target.

The yen fell 0.4% against the dollar after the Bank of Japan tamped down speculation at its meeting overnight that it could raise interest rates. The bank gave an upbeat assessment of the economy but also lowered its inflation forecast, indicating it won't tighten policy soon.

The WSJ Dollar Index, which measures the U.S. currency against 16 others, rose 0.3% to 89.94. A Labor Department report showed the number of Americans applying for unemployment benefits rose last week. Another report showed demand for long-lasting factory goods rose more slowly in March, but a closely watched proxy for business spending on new equipment rose.

The mixed data comes ahead of Friday's gross-domestic product reading for the first quarter. Analysts at Capital Economics expect the U.S. economy to have grown at an annualized rate of 1.2% in the quarter.

"The continued recovery in business investment is encouraging," Capital Economics analysts wrote. "With measures of business and consumer sentiment still at a high level, GDP growth should pick up soon."

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

(END) Dow Jones Newswires

April 27, 2017 10:58 ET (14:58 GMT)