US Dollar Retreats, Focus On French Political Uncertainty

The US dollar lost minor ground against the euro and the British pound on Tuesday morning. Discussions around Donald Trump’s proposed tariffs and  the impact of political uncertainty in France are key points of interest for economists, who are also closely monitoring comments on interest rates from policymakers at the Federal Reserve (Fed) and the European Central Bank (ECB).

European stock markets opened higher in the morning while a report coming from Switzerland showed that inflation rose by 0.7% in November, a bit lower than the 0.8% figure forecast by economists polled by Reuters.

Australian GDP Q3 2024 Report On Wednesday

The Australian Bureau of Statistics (ABS) is expected to publish its GDP report for the third quarter of the year. Economists suggest that the Australian GDP grew by 0.4% on a quarterly basis and by 1.0% on an annualised basis, slightly higher in both cases than previous quarter readings.

Inflation in Australia remains elevated, forcing the Reserve Bank of Australia (RBA) to maintain a restrictive monetary policy stance. The RBA Governor Bullock said a few days ago that core inflation remains too high to consider near-term interest rate cuts. It should be noted that retail sales in the country increased by 0.6% on a month-to-month basis in October, compared to a surge of 0.1% in September.

US Manufacturing Sector Contraction Decelerates

A report by the Institute for Supply Management (ISM) showed that the US manufacturing sector contracted in November but at a more moderate pace than in October with the ISM Manufacturing PMI reaching 48.4. ISM analysts noted that "production execution eased in November, consistent with demand sluggishness and weak backlogs," adding that "suppliers continue to have capacity, with lead times improving but some product shortages reappearing."

A Reuters poll had shown economists forecasting a figure close to 47.5. While November was the eighth month in a row that the PMI came in lower than 50.0, some analysts suggested that the election results may have boosted hopes for more business-friendly policies in the future.

ECB’s Policymakers Discuss Interest Rates

ECB governing board members commented on interest rates. Chief Economist Phillip Lane said in a Financial Times (FT) interview that “at some point, policy needs to be driven by upcoming risks rather than being backward-looking.” The Irish policymaker noted that “there is a little bit of distance to go” until the ECB would be certain that inflation would hit the 2% target. Lane, who is considered a “dove”, mentioned that “the new challenge will be to assess incoming risks.”

ECB policymaker Martins Kazaks said on Monday that, in his view, the eurozone’s central bank should continue cutting interest rates and suggested that there’s evidence that “the inflation problem will soon end.” On the contrary, ECB governing board member Isabel Schnabel said that she sees “only limited room for further rate cuts” as the impact of ECB’s tightened monetary policy fades visibly. The German policymaker noted that relaxing the ECB’s policy would not be an appropriate step based on current conditions.

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