Written by Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) – The euro weakened against a stronger dollar on Monday amid growing concerns about a possible collapse of France’s government, stalling plans to rein in a soaring budget deficit.
Meanwhile, the dollar extended its gains on strong US manufacturing data from both the Institute for Supply Management and S&P Global. But despite the generally positive indicators, Federal Reserve President Christopher Waller said Monday that he intends to lower the benchmark interest rate at his Dec. 17-18 meeting as monetary policy remains restrictive. .
The dollar’s rise against a basket of currencies on Monday came after the U.S. sector suffered its first weekly decline since November 2023 on Friday.
In Europe, Jordan Bardera, president of France’s far-right National Rally (RN) party, said his party was likely to support a no-confidence motion within days unless one was tabled. As a result, risk premiums for investors seeking to hold French government bonds rather than the benchmark German government bonds soared. “A last-minute miracle.”
Leading RN lawmaker Marine Le Pen has given Prime Minister Michel Barnier until Monday to meet the party’s budget demands.
The euro fell 1% to $1.0469, its biggest single-day drop since early November.
“The euro got off to a tough start in December due to a collapse in French political sentiment and a further decline in U.S. activity data,” Kyle Chapman, a foreign exchange market analyst at Ballinger Group, said in emailed comments. ” he said. Ballinger provides currency risk management and trading services.
“As expected, there is no clear path to reducing the budget deficit in the short term, as the caretaker government currently faces a vote of no confidence and is likely to be defeated, and new elections are not allowed until the summer.”
The yield spread between France and Germany’s 10-year government bonds (a measure of premium investors’ demand for holding French government bonds) rose 7.6 basis points to 87.3 bps, after reaching 90 bps last week, as euro zone sovereign policy continued. This was the highest level since 2012. debt crisis.
Positive data from the US. Wallerbacks get federal cut in December
Monday’s data showed once again the resilience of the U.S. economy, with U.S. manufacturing activity improving in November, orders increasing for the first time in eight months and factories facing sharp declines in raw material prices.
The Institute for Supply Management’s manufacturing PMI was 48.4 last month, up from 46.5 in October and the lowest level since July 2023.
The S&P Global Final Manufacturing PMI also came in at 49.7, up from the initial estimate of 48.8.
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“With the U.S. economy in solid shape, it makes sense for the dollar to thrive as economies across the pond face further headwinds,” said Juan Perez, trading director at Monex USA in Washington.
“[Positive data]will only push Treasury yields higher and further reduce expectations that the Fed will implement easy monetary policy.”
But Fed President Waller said on Monday that monetary policy remains sufficiently restrictive that further rate cuts at a meeting later this month “will not dramatically change the stance of monetary policy, and that There is plenty of room to slow down the pace of rate cuts later.” ”
Following Waller’s comments, the market’s odds of a 25 basis point easing this month rose to 79% from 66% late Friday, according to CME’s FedWatch. At the same time, interest rate futures lowered the probability of a Fed pause to 21% from 34% on Friday.
The dollar weakened as President-elect Donald Trump signaled a shift from his previous claims of a weak dollar by demanding that BRICS members commit not to create a new currency or support another. It was rising.
The Kremlin said on Monday that US attempts to force countries to use the dollar would backfire.
The dollar index, compared to a basket of major peers, rose 0.3% to 106.33.
Key to the outlook for interest rates will be Friday’s November jobs report, with the survey’s median forecast favoring an increase of 195,000 jobs after October’s weather and strikes. This may be revised considering the low response rate. The unemployment rate is seen rising from 4.1% to 4.2%.
The dollar fell 0.2% against the yen to 149.37 yen, down 3.3% last week, its worst decline since July. Last weekend, Bank of Japan Governor Kazuo Ueda said, following figures showing that Tokyo’s inflation rate picked up in October: “The next rate hike is coming, meaning that economic indicators are on track.” said.
currency
bid
price of
2
december
09:05
Afternoon (Greenwich Mean Time)
Description RIC Final US Percentage YTD Percentage High/Low
Change bids at the end
previous
session
Dollars 106.38 106.04 0.34% 4.94% 106.73 106.
index 02
EUR/USD 1.0498 1.0576 -0.74% -4.89% $1.0587 $1.0
ar461
USD/JPY 149.54 149.49 0.04% 6.03% 150.755 149.
No. 15
EUR/JPY 1.0498 158.35 -0.85% 0.89% 158.64 156.
39
Dollar/Switzerland 0.8863 0.8813 0.58% 5.32% 0.8889 0.88
No. 14
Pound/ 1.2651 1.2741 -0.7% -0.58% $1.2745 $1.2
$619
$/Calcium 1.4046 1.4001 0.33% 5.97% 1.409 1.39
nadian86
Australia/Doe 0.6473 0.6519 -0.69% -5.05% $0.6527 $0.6
Ral 443
Euro/Switzerland 0.9303 0.932 -0.18% 0.18% 0.9324 0.92
9
EUR/GBP 0.8295 0.8304 -0.11% -4.3% 0.8305 0.82
Rei 71
New Zealand 0.5882 0.5924 -0.57% -6.79% $0.592 0.58
$/do65
Lar
USD/NO 11.103 11.0181 0.77% 9.55% 11.1578 11.0
National Route 626
Euro/Norway 11.657 11.662 -0.04% 3.86% 11.6899 11.6
Oh, 37
Dollar/Switzerland 10.993 10.8844 1% 9.13% 11.0383 10.8
Eden 868
Euro/Sweden 11.5413 11.521 0.18% 3.74% 11.5552 11.5
en 165
(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Stefano Rebaudo in Milan; Editing by Shri Navaratnam, Gareth Jones, Toby Chopra and Jonathan Oatis)
