On Tuesday (December 3), the euro traded narrowly against the dollar during the Asian session, currently hovering around 1.0495. The euro plummeted by 0.75% against the dollar on Monday, marking the biggest single-day drop since November 9, amid concerns that the French government may face collapse. This drop reflects market vigilance over the potential fall of the French government, particularly with the far-right National Rally party threatening a motion of no confidence that could stall the government. Should the government collapse, planned reforms intended to curb the budget deficit would be difficult to implement, heightening risks to the eurozone economy.
Meanwhile, strong U.S. economic data also propelled the dollar's rise. Manufacturing data from both the Institute for Supply Management (ISM) and S&P Global exceeded expectations, further supporting the dollar's strong trend. ISM data showed that U.S. manufacturing activity picked up in November with orders rising for the first time in eight months, and input prices fell significantly. The S&P Global Manufacturing PMI was also revised up to 49.7, indicating the resilience of the U.S. economy.
The U.S. Dollar Index rose 0.59% on Monday, currently fluctuating around 106.43. Despite the favorable economic data, Federal Reserve Governor Waller noted that although the U.S. economy remains robust, he favors continuing rate cuts at the December meeting given the still restrictive monetary policy. Waller stated that while rate cuts may not drastically change the monetary policy stance, they could provide more room for future monetary easing.
In European markets, the yield spread between French and German 10-year bonds widened, with investors demanding a significantly higher risk premium to hold French debt. The increasingly turbulent political situation in France, with National Rally leader Le Pen demanding government concessions on budget issues or threatening to introduce a motion of no confidence soon, has undermined market confidence in the French economy and driven up the risk premium on French debt.
In summary, the escalating French government crisis and the intertwined expectations of Federal Reserve rate cuts are pressuring the euro, while the dollar continues to benefit from the strong performance of the U.S. economy and potential monetary easing. Markets will continue to monitor the political turmoil in France and the Federal Reserve's policy direction in December to gauge future market trends.
