Dollar in focus as Trump’s trade threats shake markets

Dollar on edge amid Trump’s BRICS threat

The dollar's performance is under intense scrutiny as markets react to President-elect Donald Trump's sharp rhetoric targeting emerging economies and major trading partners. In a weekend tweet, Trump issued a stark warning to the BRICS nations—Brazil, Russia, India, China, and South Africa—demanding they abandon plans for an alternative currency to the U.S. dollar or face punitive tariffs. His 100% tariff threat could reshape the landscape of international trade.

This latest salvo follows Monday’s announcement of sweeping tariffs: a 25% levy on goods from Canada and Mexico and an increase of tariffs on China to 35%, up from 25%. While Canadian Prime Minister Justin Trudeau signaled willingness to engage in dialogue, Mexico hinted at potential retaliation. Meanwhile, Beijing, already locked in trade tensions with the U.S., is widely expected to respond, raising the specter of a renewed tariff battle reminiscent of Trump’s previous trade wars. The timing of these measures remains uncertain, as their implementation might hinge on broader legislative efforts tied to tax reforms.

France faces political uncertainty over budget vote

Across the Atlantic, political turmoil is brewing in France, where the minority government faces a critical vote on its social security budget next week. Failure to secure approval could trigger a no-confidence vote and potential government collapse. These risks are reflected in the widening yield gap between German and French bonds, reaching levels not seen since 2012.

Mixed inflation signals in U.S. and Eurozone

On the inflation front, recent data paints a mixed picture. Eurozone inflation edged higher in November, with headline inflation rising to 2.3% from 2.0% in October, in line with forecasts. However, core inflation held steady at 2.7%, falling short of expectations for a slight uptick. In the U.S., personal consumption expenditures (PCE) inflation showed modest gains, with the core rate accelerating to 2.8% in October from 2.7% in September. Despite these increases, the broader disinflationary trend remains intact on both sides of the Atlantic.

Crucial economic data to shape market sentiment

A packed week of economic releases awaits. In the U.S., the ISM Manufacturing Index kicks off the data calendar on Monday, followed by JOLTS job openings on Tuesday, the ADP employment report on Wednesday, and the much-anticipated non-farm payrolls on Friday. A wave of Federal Reserve speakers will also command attention before the central bank’s quiet period begins.

In Europe, the focus shifts to ECB-preferred wage data due on Friday, a critical barometer for inflationary pressures. Retail sales data, set for Thursday, will reveal whether October sustained the rebound seen in prior months. Markets are poised for a turbulent week, as geopolitics and macroeconomic data collide.