US Dollar rallies after US Opening Bell on BRICS tariffs and French political meltdown

The US Dollar off to a positive start for this week, after Donald Trump slapped BRICS with tariff.
Focus shifts to Paris where this Monday during European trading hours, French parliament is to face a possible call for a vote of no-confidence.
The US Dollar Index tests important pivotal level at 106.52 with already over 0.70% gains for this Monday.

The US Dollar (USD) is spiking higher on Monday driven by two main drivers. First element is Donald Trump’s promise to impose tariffs on BRICS countries if they stop using the USD. The second main driver is the increasing French political turmoil, which is weighing on the Euro (EUR).

In a post on Saturday, the US President-elect said he would impose a 100% tariff on the BRICS if the group decides to move away from trading using the USD. “We require a commitment from these Countries that they will neither create a new BRICS Currency, nor back any other Currency to replace the mighty U.S. Dollar or, they will face 100% Tariffs, and should expect to say goodbye to selling into the wonderful U.S. Economy,” he said.

Investors are also punishing the EUR – the main currency within the DXY US Dollar Index basket – on the back of failed budget talks in France and increasing chances that a no-confidence vote against the current prime minister is approved. Finance Minister Antoine Armand said on Bloomberg television over the weekend that France will not be blackmailed on far-right demands from the National Rally (NR) of Marine Le Pen, which is asking for changes in the budget bill. The NR President Jordan Bardella said on Monday that its party will trigger a no-confidence vote mechanism “unless there is a last-minute miracle,” Reuters reports.

A no-confidence vote could take place as early as Wednesday, and if successful it could bring the French government down.

Meanwhile, the US economic calendar is set to kick off with an eventful Monday ahead, with the Institute for Supply Management (ISM) releasing its Manufacturing PMI numbers for November.

Daily digest market movers: BRICS and France in the balance

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.
At 14:45 GMT, S&P Global will release the final reading for November of its Manufacturing Purchase Managers Index (PMI) survey. The expectation is for a steady 48.8, unchanged from the preliminary reading.
Near 15:00 GMT, the Institute for Supply Management (ISM) will release its November PMI data for the Manufacturing Sector.
- The headline PMI is set to tick up to 47.5, from 46.5, but still stuck in contraction territory.
- The Prices Paid index, a leading indicator of inflation, is expected to tick up to 55.2 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, overall less than 0.50%.
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: Do not forget US Jobs Reports

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

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

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