Tariff Threats, Political Drama, and Central Bank Moves.

  • USD Resilience: The dollar strengthened as Trump threatened 100% tariffs against BRICS nations pursuing rival currencies, though implementing such tariffs may prove challenging. Key U.S. data this week includes manufacturing surveys and the November jobs report.
  • De-dollarization Debate: BRICS nations have been quiet on alternative currencies, but China’s CIPS system continues to promote renminbi transactions, raising questions about U.S. tariff leverage.
  • Euro Under Pressure: French politics, driven by Marine Le Pen’s threats to topple the government, is weighing on the euro. EUR/USD faces resistance at 1.0570/1.0600 and support at 1.0465/1.0500.
  • Pound Stability: Weak euro performance has supported GBP, with EUR/GBP dipping below 0.83. Limited UK data this week keeps attention on the BoE’s inflation outlook, with further EUR/GBP declines possible.
  • Global Central Banks: Fed and BoJ policy meetings are pivotal this month. A Fed rate cut is possible, while the BoJ may raise rates, creating potential USD/JPY volatility between 146 and 168.

USD: Trump’s Tough Talk on Tariffs
The dollar kicked off the new month with modest gains, buoyed by political headwinds against the euro and provocative weekend social media posts from President-elect Donald Trump. On Saturday, Trump issued warnings to BRICS nations against launching a rival currency to the dollar or supporting any alternative reserve currency. He threatened 100% tariffs on nations pursuing such goals. However, with BRICS leaders going quiet on their shared currency ambitions and China’s continued development of its renminbi-based CIPS payment system, such tariffs may face challenges.

These developments underline two key points:

  • Trump’s strategy hinges on leveraging the size of U.S. demand, using tariffs as a bargaining chip to secure better international deals.
  • Despite this administration’s potential interest in a weaker dollar, Trump’s vocal support of the “mighty U.S. Dollar” complicates the possibility of FX intervention.

Turning to the week ahead, U.S. economic data takes center stage, with ISM manufacturing data today, JOLTS figures tomorrow, and the November jobs report on Friday. A rebound in jobs growth to 200k is expected, though any rise in unemployment could nudge the Fed towards a rate cut on December 18. Softer U.S. data and a fully priced-in Fed cut are the main risks to the dollar, especially against the yen. While USD/JPY could move between 146 and 168, the DXY index seems likely to find support near 105.50/105.75.

EUR: Le Pen Shakes the Euro
French politics has put the euro under pressure, with Marine Le Pen threatening to topple Michel Barnier’s government in pursuit of budget concessions. This potential instability could weigh on the euro, especially with a no-confidence vote looming. Resistance for EUR/USD may solidify around 1.0570/1.0600, with support at 1.0465/1.0500.

While EUR/USD is forecast to end the year around 1.05, downside risks remain. Elsewhere, EUR/CHF appears overvalued above 0.93, with French political turmoil possibly dragging it back to the 0.9200/0.9210 range.

GBP: Steady Amid Political Shifts
The euro’s weakness has helped push EUR/GBP below 0.83 again, providing the pound with some stability. While the UK data calendar is light, Thursday’s Bank of England Decision Maker Panel survey could shed light on inflation expectations. The BoE seems cautious about inflation risks, which may slow its easing cycle.

With just three BoE rate cuts priced in over the next year, GBP rates’ resilience against USD rates suggests EUR/GBP could test its recent low of 0.8260 in the near term.

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.