December 02, 2024

“Developments over the weekend have taken their toll on EUR/USD this morning as Trump seeks to bolster the dollar’s reserve status and French politics becomes increasingly fragile. Non-farm payrolls is the main event among a string of US labour market data.”

Tim Hallinan – Trading Director

USD

The dollar has entered December with some upward momentum, owing to both some political weakness in France and Trump’s latest tariff threats. The President-elect took to his Truth Social platform to promise 100% tariffs on any of the BRICS countries that look to pursue alternatives to the US dollar’s central role in trade. The threat reconfirms the idea that Trump is set to employ tariff threats for all kinds of foreign policy objectives, and he also now appears to favour preserving the dollar’s demand, rather than trying to weaken it to shrink the trade deficit, as he has suggested before.

As the probable decider on a December rate cut – currently priced at 65% – non-farm payrolls is the big event this week on Friday. The estimate for November is 200k, although a significant proportion will be the result of the return of workers from Boeing strikes and the Florida hurricanes from October. A relatively slow underlying hiring rate and an expected uptick in the unemployment to 4.2% is a broadly supportive picture for a rate cut. Today, we get an ISM manufacturing PMI print, expected at 47.6.

GBP

Political weakness for the euro has lifted sterling to a three-week high against the single currency this morning. While a correcting dollar saw EUR/USD rise strongly last week despite events in France, GBP/EUR has been perhaps the cleanest signal of euro weakness, having risen 1% last Tuesday with few catalysts on the UK side. This externally driven dynamic for sterling will likely follow through into this week, with the UK calendar limited to some PMI revisions and a speech from the BoE’s Greene.

EUR

After steadily climbing by more than 1% last week, much of the euro’s gains have been wiped out this morning as governmental collapse approaches in France. The far-right National Rally has been demanding significant concessions on the budget proposed by Barnier’s stopgap government and is now preparing to launch a no confidence vote this week unless, in Bardella’s words, there is a ‘last minute miracle’. Last week this sent the extra yield demanded for investing in French debt rather than Germany’s to the highest since the debt crisis in 2012, owing to the crumbling possibility that politicians will be able to push through deficit reductions. There is an unemployment reading this morning where consensus is looking at another 6.3% – last month’s record low – and we also get some final manufacturing PMI prints, having dropped to 45.2 at the first read.

Markets

Stocks had a strong day on Friday as Wall St capped off its best monthly gain in a year with a 0.9% rally in the S&P 500 and a 0.6% rise in the Nasdaq in holiday-thinned trading. Japan’s Nikkei 225 rose 0.8% and the Eurostoxx 50 was lifted by 1%.

Main Economic Events (All Times CET)

11:00am: Eurozone Unemployment Rate
4:00pm: US ISM Manufacturing PMI

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