The US Dollar kicked off the week with a strong performance, influenced by recent developments involving Donald Trump and the BRICS nations. The scene is set for an eventful day in Paris, where the French parliament might face a vote of no-confidence during European trading hours.
On Monday, the US Dollar Index hit a critical mark of 106.52, already achieving gains over 0.70% for the day.
The surge of the US Dollar on Monday can be attributed to two primary factors. First, there’s Donald Trump’s announcement of imposing tariffs on BRICS countries if they cease using the USD. Secondly, political unrest in France is putting pressure on the Euro.
In a statement released on Saturday, Trump warned he would introduce a 100% tariff on BRICS nations if they abandon the USD for trade. He stated, “We require a commitment from these countries not to create a new BRICS currency or support another currency to replace the US Dollar, or they should expect hefty tariffs and to lose access to the lucrative US market.”
Additionally, the Euro is feeling the heat due to political gridlock in France, where budget negotiations have stalled, raising the likelihood of a no-confidence vote against the Prime Minister. Speaking on Bloomberg TV over the weekend, Finance Minister Antoine Armand asserted that France wouldn’t succumb to demands from Marine Le Pen’s National Rally party, which demands revisions to the budget bill. Meanwhile, NR President Jordan Bardella warned of triggering a no-confidence vote unless a “last-minute miracle” occurs, according to Reuters.
The potential vote could take place as early as Wednesday, and if successful, it could destabilize the French government.
Meanwhile, markets are awaiting the release of November’s Manufacturing PMI numbers from the Institute for Supply Management (ISM), kicking off what promises to be an eventful economic week in the US.
In a weekend interview, French Finance Minister Antoine Armand emphasized that his government will not yield to Marine Le Pen’s far-right party demands. He noted that if the National Rally backs the non-confidence vote with their majority, the French government could fall.
Later today, at 14:45 GMT, S&P Global will reveal its final PMI figures for November. Expectations hold steady at 48.8, unchanged from prior readings. Following that, near 15:00 GMT, ISM will publish its numbers for the Manufacturing Sector, with headline PMI expected to tick up to 47.5.
Around 20:15 GMT, Federal Reserve Governor Christopher Waller will discuss the US economic outlook, followed by a speech from New York Fed President John Williams at 21:30 GMT.
Stocks are showing positive signs, with both US and European equities improving, although gains are under 0.50%. The CME FedWatch Tool currently suggests about a 67.1% likelihood of a 25 basis points rate cut in December, with meetings from the Fed boosting these odds.
The US 10-year bond rate stands at 4.23%, consistent with the previous week’s close at 4.16%.
Feeling the effects of political instability in Europe, the US Dollar Index is witnessing capital flow back to the US. A potential collapse of the French government could ripple into Germany, where leadership is also precarious ahead of the 2025 elections. Such uncertainty might dampen European investment opportunities, while the upcoming pro-business Trump administration is seen as equity supportive.
Technically, the 106.52 level serves as a key marker for the Dollar Index and looks ready to be retested. If breached, targets at 107.00 and 107.35 come into focus. However, caution is urged, as a setback could push the Index down to 105.53, with further potential declines toward 104. Meanwhile, the 200-day Simple Moving Average at 104.03 may provide support.
The Federal Reserve’s role in shaping US monetary policy is pivotal. It aims for price stability and employment, mainly by adjusting interest rates. High inflation typically prompts the Fed to increase rates, strengthening the US Dollar. Conversely, if inflation falls or unemployment rises, rate cuts are likely, which can weaken the Dollar.
Throughout the year, the Fed holds multiple meetings where economic conditions and policy decisions are discussed. In extreme economic circumstances, measures like Quantitative Easing (QE) or its reverse, Quantitative Tightening (QT), are implemented to manage the currency’s value and economic conditions.
