Written by Wayne Cole
SYDNEY (Reuters) – The dollar edged higher on Monday in what is shaping up to be a crucial week for prospects for U.S. interest rate cuts, while the yen's recent rebound was supported by bets that domestic interest rates will rise.
The dollar also called on BRICS members on Saturday to commit to creating a new currency or supporting another currency to replace the dollar or face 100% tariffs. It also received verbal support from US President-elect Donald Trump.
Political uncertainty in France increased pressure on the euro, which fell 0.4% to $1.0532 after gaining 1.5% last week and moving away from a one-year low of $1.0425.
Despite falling last week, it ended November up 1.8%, rising to 106.170.
“Given the continued resilience of the U.S. economy and the deteriorating outlook elsewhere, we don't see this as the beginning of another dollar pullback,” said Jonas Goltermann, deputy chief market economist at Capital Economics.
“However, the bar for expected interest rates to shift further in the US's favor in the short term is very high,” he added. “While risks remain dollar-biased through 2025, a period of calm towards the end of the year appears to be the most likely scenario.”
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 expected to rise slightly from 4.1% to 4.2%, prompting the Federal Reserve to cut interest rates by 25 basis points on December 18th.
Markets are suggesting there is a 65% chance of such easing, but only two more rate cuts are priced in for all of 2025.
A number of Fed officials are scheduled to speak this week, including Fed Chairman Jerome Powell on Wednesday, and other data will include surveys of manufacturing and services.
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The dollar has rebounded 0.4% against the yen, falling 3.3% last week, its worst level since July. Support is located near 149.40/47 and resistance is located at 150.45.
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.
Business investment in the third quarter remained at a healthy level of 8.1%, according to data released on Monday, with the market set to rise by a quarter point after the Bank of Japan raised its policy by 0.5 points at its December 18th and 19th policy meetings. %, which now incorporates a 63% chance of raising the price.
barclays (LON:) Economist Christian Keller said this week's data on worker earnings should show further recovery, with all signs pointing to another strong “spring labor” wage round in February.
“Wage and inflation conditions continue to support further rate hikes, but whether the BOJ moves in December or January remains a close call,” he added.
The European Central Bank is expected to cut interest rates this month, with markets suggesting there is a 27% chance of a 50 basis point (bp) cut on December 12th.
Political uncertainty is also weighing on the single currency as investors wait to see if the French government can get through this week unscathed.
France's far-right National Rally leaders said on Sunday that the government had rejected demands for further budget concessions, raising the possibility of a no-confidence vote that could topple Prime Minister Michel Barnier within days. Ta.
The threat of widening budget deficits has pushed French yields to match those of Greece, while the spread with German yields has reached its highest since 2012.
