The Dollar Index (DXY) yesterday suffered its largest one-day correction since early August. One factor in play was some less dovish comments from the ECB's Isabel Schnabel and the other was probably some buy-side end-month rebalancing flows. Fund managers will have been re-adjusting non-USD portfolios upwards to bring them back to desired benchmarks. Presumably, some of this activity took place in the more liquid markets yesterday than waiting for Thanksgiving-thinned conditions, ING’s FX analyst Chris Turner notes.

DXY can find support near 106.00

“Also worth mentioning overnight is the Mexican peso rallying 1% after President-elect Trump posted that he'd had a ‘wonderful conversation’ with Mexico's President Claudia Sheinbaum. Trump concluded that she had agreed to effectively close the border with the US, while her post seemed to reflect a different conversation. Rather than signaling the all-clear for Mexican asset risk, probably the strongest takeaway is that volatility is here to stay. For example, USD/MXN three-month realized volatility is now 15%. This compares to 7% back in March. Volatility is the enemy of the carry trade and at these kinds of volatility levels, don't expect the peso to benefit from carry trade inflows anytime soon.”