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The Forex market has started the week with significant movements, with a weakened euro against the US dollar, due to growing political uncertainty in France and the impact of positive data from the US economy.
The common European currency fell 1% to $1.0469, marking its biggest daily drop since early November. This setback is directly related to the possible fall of the government in France, led by Prime Minister Michel Barnier, due to the lack of agreement with the far-right National Rally party (RN).
Evolution of the Euro in the last month. Source: Yahoo Finance
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On the other hand, the dollar found support in solid manufacturing data in the United States and in the statements of the governor of the Federal Reserve, Christopher Waller, who anticipated a possible cut in interest rates at the December meeting.
Political tension in France
The French political panorama is becoming more acute with the possibility of a motion of no confidence promoted by the RN, led by Marine Le Pen and Jordan Bardella, due to budget disagreements. This political conflict increases risk in debt markets, with the yield spread between French and German bonds reaching 87.3 basis points, the highest level since 2012 during the euro area sovereign debt crisis.
According to Kyle Chapman, Forex market analyst at Ballinger Group, this situation generates a strong negative start for the euro in December, while uncertainty persists over how France will reduce its deficit without a clear path to new elections before the summer.
Positive US data boosts dollar
In contrast, the US economy shows signs of resilience. Manufacturing data from the Institute for Supply Management (ISM) and S&P Global reflected an improvement in November, with the manufacturing PMI rising to 48.4 from 46.5 in October. This economic optimism, along with Waller’s statements about a still restrictive monetary policy, strengthened the dollar.
The dollar index, which measures its performance against a basket of currencies, rose 0.3% to 106.33, also supported by statements from President-elect Donald Trump about preventing the creation of new currencies by the BRICS countries.
Expectations in the Forex market
The Forex market will continue to pay attention to the November employment report, which could influence the Fed’s decision regarding interest rate cuts. Projections indicate an increase of 195,000 jobs, while the unemployment rate could rise slightly to 4.2%.
With a strengthened dollar and a euro pressured by internal uncertainties, Forex market operators face a December marked by volatility and key economic decisions.
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