Dollar flexes on Trump swipe, French politics, yuan slide

A look at the day ahead in U.S. and global markets

By Mike Dolan, Editor-At-Large, Financial Industry and Financial Markets

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The dollar breezed into December on the front foot, helped by Donald Trump's weekend support for its global reserve status just as the euro wavered on tense French politics and China's yuan swooned on fresh easing expectations there.

As U.S. markets return in earnest from Thanksgiving into the final month of a bumper year, the dollar recaptured its mojo after a tepid holiday week for the greenback.

Without any obvious prompt, the President-elect's latest social media swipe warned the BRICS bloc of developing nations against pushing a rival currency to the dollar in global trade and commerce - adding they faced 100% tariffs if they did.

While the trade threat seems notional, it contained some heft in markets who had assumed a second Trump presidency would be overtly behind weakening the dollar's value. Reserve status and exchange rate value are two different things, of course, but the comments seemed to bolster the currency nonetheless.

More immediately the 0.5% jump in the dollar index on Monday was driven largely by the relapse in the euro as markets assessed the risk of a collapse of the French government.

France's far-right National Rally will likely back a no-confidence motion against the government unless there's a "last-minute miracle", with lawmaker Marine Le Pen giving Prime Minister Michel Barnier until Monday to yield to RN's demands as a part of protracted horse trading over the annual budget plan.

The euro fell almost a cent at one point first thing on Monday before regaining a toehold above $1.05 and France's benchmark CAC 40 dropped more than 1%.

And yet French sovereign debt, in the eye of the storm, appeared calmer - with nominal 10-year yields falling to their lowest in a month and premiums over German equivalents edging in from Friday's levels.

Pedestrians walk by as people wait in line outside of Madison Square Garden to attend a rally for Republican presidential nominee and former U.S. President Donald Trump in New York City, U.S., October 27, 2024. REUTERS/Leah Millis

Speculation is rife that China will respond to any renewed tariff hikes from an incoming Trump administration by allowing a weaker yuan, partly offsetting the impact on its exports to the United States.

But before we even get there, further restrictions on U.S.-China trade were due on Monday, with the U.S. due to launch its third crackdown in three years on China's semiconductor industry - curbing exports to 140 companies including chip equipment maker Naura Technology Group among other moves.

Back on Wall Street, the new week brings another critical sweep of labor market updates - now central to Federal Reserve thinking as it heads towards its final meeting of the year and after unusual payroll weakness in October.

After several jobs market cuts through the week, Friday brings the November employment report. Payrolls growth is expected to have bounced back to 183,000 during the month compared to the meager 12,000 recorded for October.