A hat supporting Republican Donald Trump is seen at the New York Stock Exchange (NYSE) in this Reuters photo.
In a surprising turn of events, U.S. President-elect Donald Trump has voiced support for a stronger dollar, marking a shift from his previous stance of favouring a weaker currency to address trade imbalances. This change in tone gave the dollar a boost on Monday, clawing back losses from the previous week. The unexpected remarks signalled that Trump might not actively pressure the currency, a sentiment embraced by the market.
The ripple effect was immediate. The Chinese yuan took a hit, dropping to a three-month low against the dollar. Similarly, the Japanese yen weakened by 0.5%, with the dollar trading above 150.50 yen. This overshadowed comments from Bank of Japan Governor Kazuo Ueda, who hinted that interest rate hikes might be on the horizon as Japan’s economy shows robust growth. Third-quarter data revealed an 8.1% surge in Japanese business investment, fuelling speculation that the BOJ could raise rates by 0.25 percentage points at its December meeting.
Meanwhile, all eyes are on the U.S. Federal Reserve, which may cut rates during its December 18 meeting, depending on upcoming economic reports. The U.S. labour market is under the spotlight, with analysts predicting a rebound of 195,000 new jobs in November. However, estimates vary widely, with forecasts ranging from 160,000 to 270,000. JPMorgan anticipates a high of 270,000, driven by the resolution of recent strikes and hurricane-related disruptions. However, a potential uptick in unemployment to 4.2% could keep the Fed leaning toward easing monetary policy.
In Europe, the European Central Bank (ECB) is expected to cut interest rates by at least 25 basis points on December 12, with a slim chance of a deeper 50-basis-point cut. Investors are watching closely, particularly in France, where political turbulence adds uncertainty. The far-right National Rally party is threatening a no-confidence vote that could unseat Prime Minister Michel Barnier. This political unrest, combined with a ballooning budget deficit that might reach 6% of GDP, could make French borrowing costs more expensive than Greece's—a startling prospect.
On the global stage, the Russian rouble remains under scrutiny after its sharp decline last week. Russian authorities appear to be tolerating the devaluation, possibly to boost export earnings from dollar-priced commodities, a strategy that could have long-term consequences for the nation’s economy.
Monday’s market movers include key data releases such as UK housing prices for November, EU unemployment figures, and a slew of PMI reports from the euro zone, Germany, France, and the UK. High-profile appearances from financial leaders, including ECB President Christine Lagarde and Fed Governor Christopher Waller, could also sway market sentiment.
