- The US Dollar pops after Donald Trump slapped BRICS with tariff.
- Focus on Paris where this Monday where Prime Minister Michel Barnier triggered special Article to get his budget bill passed.
- The US Dollar Index snaps important upside resitance and powers on towards 106.70.
The US Dollar (USD) rallying firmly this Monday, fueled by two main drivers this Monday at the start of the week. The first main driver comes from President-elect Donald Trump who tweeted over the weekend that BRICS nations could face tariffs should they consider continuing with their de-dollarization process. The tweet which came out over the weekend was enough to kickstart the week in Asian markets with a firm bid for the US Dollar.
Second main driver this Monday was a developing story where French Prime Minister Michel Barnier called in article 49.3 which allows him to surpass the French Parliament and have his social security bill adopted. Once Prime Minister Barnier triggered the article, both Left-wing leader Mathilde Panot and Far-right wing leader Marine Le Pen both said they would back the call for a no-confidence vote. That vote could take place at earliest Wednesday and already now looks to be a done deal, which means the French government could be set to be toppled as early as this week.
Amidst all this, the Institute for Supply Management released its November numbers for the Manufacturing Sector which was a bit stuck in a slump in October. A surprise uptick in the Purchase Manager Index part together with sharp drop in the leading inflation component Prices Paid sparked some positiveness for the Manufacturing Sector. This trifecta has pushed the US Dollar and the US Dollar Index to firm highs for this Monday.
Daily digest market movers: ISM goldilocks print
- In a televised interview over the weekend, French Finance Minister Antoine Armand said on Bloomberg television that the French government will not be held hostage by the far-right party of Marine Le Pen. By pushing back on the additional demands from the National Rally party, the French government could fall as a no-confidence vote will get enough votes if Marine Le Pen’s party backs the vote with its majority.
- In a developing story, meanwhile Prime Minister Michel Barnier has surpassed the French Parliament by calling in article 49.3 to adopt his social security bill. The move in turn triggered a call for a vote of no-confidence from both the Left-wing and the Right-wing party.
- At 14:45 GMT, S&P Global has released the final reading for November of its Manufacturing Purchase Managers Index (PMI) survey. The actual number came in at 49.7, firmly beating the expected 48.8.
- The Institute for Supply Management (ISM) has released its November PMI data for the Manufacturing Sector.
- The headline PMI ticked higher to 48.4, coming from 46.5 and beating the estimated 47.5.
- The Prices Paid index, a leading indicator of inflation, fell to 50.3, coming from 54.8.
- Near 20:15 GMT, Federal Reserve Governor Christopher Waller delivers a speech about the US economic outlook at the American Institute for Economic Research Monetary Conference in Washington DC.
- At 21:30 GMT, Federal Reserve Bank of New York President John Williams delivers keynote remarks and participates in a Q&A session at an event organized by the Queens Chamber of Commerce in New York.
- Equities are turning green after the US Opening Bell with green for even European equities.
- The CME FedWatch Tool is pricing in another 25 basis points (bps) rate cut by the Fed at the December 18 meeting by 67.1%. A 32.9% chance is for rates to remain unchanged. The Fed Minutes helped the rate cut odds for December to move higher.
- The US 10-year benchmark rate trades at 4.23%, rather steady for the start of the week and above the 4.16% seen last week on Friday.
US Dollar Index Technical Analysis: Turmoil already at the start of the week
The US Dollar Index (DXY) is seeing a flight from across the Atlantic Ocean, with investors pulling out some investments out of Europe and into the US. A potential fall of the French government could quickly spill over into Germany, where Prime Minister Olaf Scholz position is hanging by a threadahead of the 2025 elections. All this political uncertainty could block investment opportunities, with investors favoring the equity-supportive Trump administration that is set to take over in January.
On the upside, 106.52 (April 16 high) is the first level to watch and looks ready to be tested already this Monday. Should the Dollar bulls reclaim that level, 107.00 (round level) and 107.35 (October 3, 2023, high) are back on target for a retest.
However, warnings for a knee-jerk reaction need to be issued. In case of a downturn, the pivotal level at 105.53 (April 11 high) comes into play before heading into the 104-region. Should the DXY fall all the way towards 104.00, the big figure and the 200-day Simple Moving Average at 104.03 should catch any falling knife formation.
US Dollar Index: Daily Chart
BRICS FAQs
The BRICS is the acronym denoting the grouping of Brazil, Russia, India, China and South Africa. The name was created by Goldman Sachs’ economist Jim O’Neill in 2001, years before the alliance between these countries was formally established, to refer to a group of developing economies that were predicted back then to lead the global economy by 2050. The bloc is seen as a counterweight to the G7, the group of developed economies formed by Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.
The BRICS is a bloc which intends to give voice to the so-called “Global South”. The alliance tends to have similar views on geopolitical and diplomatic issues, but still lacks a clear economic integration as the governing systems and cultural divergence between its members is significant. Still, it holds yearly summits at the highest level, coordinates multilateral policies and has implemented initiatives such as the creation of a joint development bank. Egypt, Ethiopia, Iran and the United Arab Emirates joined the group in January 2024.
The five founding members of the BRICS alliance account for 32% of the global economy measured at purchasing power parity as of April 2023, according to data from the International Monetary Fund. This compares with the 30% of the G7 group.
There has been increasing speculation about the BRICS alliance creating a currency backed by some sort of commodity like Gold. The proposal is meant to reduce the use of the dominant US Dollar in cross-border economic exchanges. In the BRICS’ 2023 summit, the group stressed the importance of encouraging the use of local currencies in international trade and financial transactions between the members of the bloc as well as their trading partners. The group also tasked finance ministers and central bank governors “to consider the issue of local currencies, payment instruments and platforms” for this purpose. Even if the bloc’s de-dollarization strategy looks clear, the creation and implementation of a new currency seems to have a long way to go.
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