The dollar witnessed a significant surge on Monday, with the potential for U.S. rate cuts emerging as a key focus during what is anticipated to be a crucial week. News.Az reports, citing Reuters, that the currency received verbal support from U.S. President-elect Donald Trump, who took the markets by surprise with a change in tone. On Saturday, Trump demanded that BRICS member countries refrain from creating a new currency or supporting an alternative that could replace the dollar, otherwise facing 100% tariffs. This marked a departure from his previous stance of advocating a weaker dollar to combat trade wars. As a result, the Chinese yuan quickly dropped to a three-month low at 7.2662 per dollar, and the Indian rupee hit record lows.
Political Uncertainty and the Euro
Political uncertainty in France added to the pressure on the euro, which slipped 0.4% to $1.0532. After bouncing 1.5% last week and moving away from a one-year trough of $1.0425, the euro faced further challenges. This saw the dollar index edge up to 106.170, having closed November with a 1.8% gain despite a setback last week.Economist's PerspectiveJonas Goltermann, deputy chief markets economist at Capital Economics, stated that given the ongoing resilience of the U.S. economy and a deteriorating outlook elsewhere, they do not believe this is the beginning of a more significant setback for the dollar. However, he added that the threshold for a further shift in expected interest rates in favor of the U.S. in the near term is quite high. In their view, a period of consolidation into year-end appears to be the most likely scenario, although the risks still lean in favor of the dollar over the course of 2025.November Payrolls Report and the FedKey to the outlook for rates is the November payrolls report due on Friday. Median forecasts suggest a rise of 195,000 following the weather and strike-hit October report. Given the low response rate for that survey, the report could also be revised. The jobless rate is expected to edge up to 4.2% from 4.1%, which should keep the Federal Reserve on track to cut rates by 25 basis points on December 18. Markets imply a 65% chance of such an easing, but they only have two more cuts priced in for all of 2025.Other Data and Fed OfficialsA host of Fed officials are scheduled to speak this week, including Fed Chair Jerome Powell on Wednesday. Other data releases include surveys of manufacturing and services. These will provide additional insights into the economic landscape and the potential direction of rates.READ MORE