Incoming US President Donald Trump provided the dollar support by warning the BRICS emerging nations against trying to replace the greenback with any other currency, heaping pressure on emerging market currencies.
“There’ll be two drivers of market volatility this month. The first remains the impact of Trump, especially future fiscal settings and, increasingly, looming trade wars,” said Kyle Rodda, senior financial markets analyst at Capital.com.
“The second is what the US Federal Reserve does with policy this month.
“If the Fed delivers (a cut) and provides sufficiently dovish guidance, it may green light some sort of ‘Santa Rally’,” Rodda said.
The euro was struggling due to the risk of an imminent collapse of the French government, with Prime Minister Michel Barnier confronted with a Monday deadline to make more budget concessions or face a no confidence vote.
The single currency slumped 0.53% to US$1.0520 earlier in the day after touching a one-week high of US$1.0597 on Friday.
French bond futures fell 0.25% and stocks in Europe were poised for a much lower open, futures indicated.
“If the Barnier government falls, broader downward pressure on the euro would quickly re-assert itself, including against the Swiss Franc,” said Paul Mackel, global head of FX research at HSBC.
The outlook for monetary policy in the region added to the drag on the euro, with the European Central Bank seen cutting rates this month. Markets ascribe a 27% chance it might even ease by 50 basis points on Dec 12.
The Federal Reserve (Fed) is also in focus, with Friday’s monthly payrolls report set to inform policymakers’ thinking about whether to cut rates again on Dec 18.
A number of Fed officials are due to speak this week, including Fed Chair Jerome Powell on Wednesday. Traders currently put the odds of a quarter-point reduction at about 66%.
That has left the dollar index, which measures the currency against six major rivals, 0.24% higher at 106.28.
In Asia, Chinese shares got an additional boost from a robust reading in a private manufacturing survey today.
The survey results largely echoed an official survey on Saturday, which showed manufacturing activity expanded modestly, suggesting a blitz of stimulus is finally trickling through to the world’s second-largest economy.
Hong Kong’s Hang Seng inched 0.16% higher, and mainland Chinese blue chips added 0.6%.
In a holiday-shortened session on Friday, the S&P 500 and Nasdaq added 0.6% and 0.8% respectively to close at all-time highs.
That provided the boost for tech shares in Asia, with Taiwan stocks rising over 2% and South Korea’s KOSPI gaining 0.38%. Japan’s Nikkei rose 0.8%
Japanese government bond (JGB) yields climbed to a 16-year high after Bank of Japan (BOJ) governor Kazuo Ueda said in an interview published at the weekend that another rate hike is “approaching in the sense that economic data are on track”.
However, Ueda also told the Nikkei that the central bank wants to scrutinise developments in the US economy as there was a “big question mark” on its outlook, such as the fallout from Trump’s proposed tariff hikes.
The yield on two-year JGBs jumped 3 basis points to 0.625%, the highest since November of 2008.
Market-implied odds of a quarter-point increase from the BOJ this month stood at around 64%, with the steadily rising expectations boosting the yen.
Today, the yen weakened 0.6% to 150.68 per dollar but remained close to the six-week high of 149.47 it touched on Friday.
In cryptocurrencies, ether hit a near six-month high of US$3,762.20 and was last up 2% at US$3,674.44.
Bitcoin was last at US$96,434, hovering close to the record high from Nov. 22 at US$99,830.
Gold sank 1% to US$2,627.71 under pressure from the strong dollar, after sliding over 3% in November, its worst monthly performance since September 2023.
Oil prices were lifted by the Chinese manufacturing data, and as Israel resumed attacks on Lebanon despite a ceasefire agreement.
Brent crude futures climbed 39 cents to US$72.23 a barrel, while US West Texas Intermediate crude was at US$68.37 a barrel, up 37 cents.