By Wayne Cole
SYDNEY (Reuters) – The dollar rallied again on Monday in what looks to be a critical week for the prospect of a U.S. interest rate cut, with verbal support from U.S. President-elect Donald Trump.
In a surprise change of tone, Trump on Saturday demanded that BRICS member countries pledge not to create a new currency or support another currency that could replace the dollar or face 100% tariffs.
That marked a shift from his earlier advocacy of a weaker dollar to combat trade wars and quickly fell to a three-month low of $7.2662 against the greenback, while the Indian rupee hit record lows.
Political uncertainty in France added pressure on the euro, which slipped 0.4% to $1.0532, after jumping 1.5% last week to pull away from a one-year low of $1.0425.
That led to a rise to 106,170, after ending November with a gain of 1.8%, even after last week’s pullback.
“Given the continued resilience of the US economy and the deteriorating outlook elsewhere, we do not think this is the start of a deeper dollar pullback,” said Jonas Goltermann, deputy chief market economist at Capital Economics.
“But the bar for a further shift in expected interest rates in favor of the US in the near term is quite high,” he added. “A period of consolidation until the end of the year seems the most likely scenario to us, although risks remain skewed in favor of the dollar through 2025.”
Key to the rate outlook will be the November payrolls report due on Friday, where median forecasts favor a rise of 195,000 after October’s weather and strikes report, which may also be revised down given the low response rate for that research.
The unemployment rate is expected to rise to 4.2% from 4.1%, which should keep the Federal Reserve on track for a 25 basis point cut on December 18.
Markets imply a 65% chance of such an easing, although they also only have two more price cuts for all of 2025.
A host of Fed officials are scheduled to speak this week, including Fed Chairman Jerome Powell on Wednesday, while other data includes surveys of manufacturing and services.
YEN PARES GET
The dollar regained 0.4% against the yen at 150.71, after falling 3.3% last week in its worst session since July. Support is around 149.47 with resistance at 151.53.
Over the weekend, Bank of Japan Governor Kazuo Ueda said the next interest rate hikes were “closer in the sense that economic data is on track,” after figures showed Tokyo inflation rose in October.
Data released on Monday showed business investment rose a healthy 8.1% in the third quarter, prompting markets to price in a 63% chance the BOJ will hike a quarter point to 0.5% at its 18-19 policy meeting. December.
Barclays (LON: ) Economist Christian Keller said wages data this week should show further gains and all signs point to another strong “shunto” round of wages in February.
“The wage and inflation picture continues to support further rate hikes, although the question remains whether the BOJ will change in December or January,” he added.
The European Central Bank is expected to cut rates this month, with markets implying a 27% chance it could even cut by 50 basis points on December 12.
Political uncertainty is another drag on the single currency as investors wait to see if the French government can survive the week intact.
Leaders of France’s far-right National Assembly said on Sunday that the government had rejected their calls for more budgetary concessions, raising the prospect of a no-confidence vote in the coming days that could oust Prime Minister Michel Barnier.
The threat of a widening budget deficit has seen yields in France level with those in Greece, while the spread over German yields has reached its highest level since 2012.
