(Bloomberg) — The dollar rose higher as the crisis surrounding the French government deepened, dragging the euro along with it. Government bonds fell as traders prepared for US data that could impact interest rate prospects.
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On the stock front, US futures saw small moves, signaling a pause in the rally that just delivered the S&P 500’s strongest month of the year. In Europe, shares of Stellantis NV fell more than 8% after Chief Executive Officer Carlos Tavares resigned from the automaker following a dispute with the board of directors.
The Bloomberg dollar index rose 0.5% while the euro fell as the French government sought to avoid being overthrown by the far right in a standoff over the national budget. French bonds and shares rallied after Prime Minister Michel Barnier made last-minute concessions on some demands from Marine Le Pen’s party.
“There is certainly political instability and the securities, the French government bonds, are pricing in that instability,” Ecaterina Bigos of AXA Investment Management told Bloomberg TV. “Political instability creates uncertainty, but what is more important is what France will do to reduce that deficit?”
Meanwhile, Treasury bonds fell as traders looked for new insights into the U.S. economy that could help shape Federal Reserve policy. The dollar was further supported by Donald Trump’s comments that the BRICS countries should not create a currency that rivals the dollar, another reminder of the new US president’s America-first agenda.
“A Trump presidency will put upward pressure on the US dollar given some of the policy stance, tariffs and others he is talking about,” said Jun Bei Liu, portfolio manager at Tribeca Investment Partners Pty Ltd.
Although the dollar has risen about 2% since the November 5 election, December is typically a month when the dollar is punished. The dollar posted losses in eight of the last 10 Decembers, often due to year-end rebalancing flows and the so-called Santa Rally, which encourages traders to sell dollars for riskier assets such as stocks.
And the likelihood of sudden price swings is greater this time, with the risk that Trump’s social media posts will roil markets and unnerve traders in a month that also sees nine major central bank policy meetings and a flurry of major economic facts.
Among the global events taking center stage this week, Fed Chairman Jerome Powell will participate in a moderated discussion on Wednesday. Data due Friday will provide an assessment of the U.S. labor market.