Sterling firms after 3-day slide against sagging dollar

British Pound

Reuters: Sterling was on track to snap a three-day losing streak on Monday, as the dollar's slide after the selection of fund manager Scott Bessent as U.S. Treasury Secretary lent support to most major currency pairs. The pound firmed 0.4% to $1.2579 after slumping to a six-month low of $1.2475 on Friday after disappointing British business output and retail sales data raised the prospect of more aggressive interest rate cuts by the Bank of England. BoE Deputy Governor Clare Lombardelli said on Monday she was more worried about the risk that inflation comes in higher - not lower - than the central bank has forecast as she made the case for only gradual reductions in interest rates.

The BoE is expected to be less dovish than the European Central Bank or the Federal Reserve in the face of stubborn inflation. The BoE has lowered rates twice since August to 4.75%, less than that ECB and the Fed. Money markets have priced in nearly 70 basis points of more BoE interest rate reductions by the end of 2025, compared with around 150 bps for the ECB and 70 bps for the Fed. The dollar index retreated from its two-year peak to 106.94 on Monday, consolidating after a strong run on Bessent's nomination for the highest-ranking U.S. economic position.

The news spurred bets his appointment would reduce the chance of severe tariffs and keep a lid on deficits, pressuring yields which slightly diminished the dollar's rate appeal. The pound had slipped to 83.37 pence per euro from a two-week high of 82.70 on Friday, after outperforming the euro zone's common currency this month. The fall in sterling has been correlated to the euro since U.S. election, broadly due to dollar strength taking precedence over the data and policy divergence that was more of a theme before the election, Goldman Sachs strategists said in a note.

"We still see upside in long sterling expressions versus EUR and Euro-sensitive currencies like SEK, where the pound should differentiate itself a bit more on a divergence in domestic prospects including our expectation for growth outperformance and an asymmetric impact from U.S. tariffs." With no major British data scheduled for release this week, focus will be on inflation data out of the U.S. and the eurozone, remarks from BoE speakers.

US Dollar

Reuters: The U.S. dollar surged against major rivals on Tuesday after President-elect Donald Trump said he would sign an executive order that would impose tariffs on products coming into the United States from Mexico, Canada and China. The comments spurred a rally in the dollar, with the greenback rising nearly 2% against the Mexican peso and hitting a four-and-a-half-year high against its Canadian counterpart. The U.S. currency also rose to its highest level since July 30 against China's yuan. The dollar was on the back foot over the past few days as U.S. Treasury markets cheered Trump's pick of hedge fund manager Scott Bessent for U.S. Treasury secretary.

While traders see Bessent as an old Wall Street hand and fiscal conservative, he has also openly favoured a strong dollar and supported tariffs. Analysts suggested market reaction to the choice will likely be short lived. "It feels like we've just had a time warp back to 2016," said Jason Wong, senior market strategist at BNZ. "The market is going to be twitchy. You can jump to conclusions but I wouldn't be jumping to anything at the moment so the market just needs to get a grip."

Trump said that on his first day in office he would impose a 25% tariff on all products from Mexico and Canada. On China, the president-elect said Beijing was not taking strong enough action to stop the flow of illicit drugs crossing the border into the U.S. from Mexico by curbing the export of drug making ingredients. "Until such time as they stop, we will be charging China an additional 10% Tariff, above any additional Tariffs, on all of their many products coming into the United States of America," Trump said. China has previously denied the allegations.

The Australian dollar sank to a more than three-month low of $0.64335 in early Asian hours and was last down 0.41% at $0.6478. The Aussie is often sold as a liquid proxy for the yuan given China's status as Australia's biggest trading partner. New Zealand dollar touched a one-year low of $0.5797 and was last down 0.38% at $0.5823. Ben Bennett, Asia-Pacific Investment Strategist at Legal And General Investment Management, said investors have so far focused on market-positive policies under President-elect Trump like tax cuts and deregulation since the election, but that it is arguably quicker for him to implement his more challenging policies such as higher tariffs. "This announcement serves as a wake up call."

"Tariffs should be good for the U.S. dollar and bad for currencies that are being tariffed as trade balances shift, but I'm not sure Trump's government will be happy to let that trade accelerate." Some analysts also point out that tariff threats could be seen as a negotiating tactic. "The silver lining to this is that instead of an ideologically driven tariff scenario where there is little to be done to avoid a major second trade war, as long as there is room for negotiation there is a possibility for a less damaging outcome," said Lynn Song, chief economist for greater China at ING.

The dollar index, which measures the U.S. currency against six rivals, was last at 107.37. The euro fell 0.35% to $1.046125, while sterling was last down 0.33% at $1.25275. The euro zone's single currency had taken a hit on Friday as European manufacturing surveys showed broad weakness, while U.S. surveys surprised on the high side. Turning to cryptocurrencies, bitcoin was trading at $94,578, well below the record high of $99,830 it touched last week. Bitcoin met profit-taking ahead of the symbolic $100,000 barrier, having climbed more than 40% since the U.S. election earlier this month on expectations Trump will loosen the regulatory environment for cryptocurrencies.

South African Rand

Reuters: South Africa's rand strengthened on Monday, as investors started the week on the front foot ahead of a slew of month-end economic data releases. At 1525 GMT, the rand traded at 18.0225 against the dollar, up 0.5% from its previous close. Local investor focus will turn towards several economic indicators due this week, including a business cycle indicator, producer inflation, trade and budget balance figures. The rand has regained some ground against the greenback after U.S. President-elect Donald Trump's selection of fund manager Scott Bessent as the next U.S. Treasury secretary calmed emerging markets, said Andre Cilliers, currency strategist at TreasuryONE.

Cilliers said the local central bank's conservative monetary policy stance with a smaller interest rate cut last week also helped the rand. On the stock market, the Top-40 index closed down 0.8%. South Africa's benchmark 2030 government bond was stronger, with the yield down 6 basis points to 8.945%.

Global Markets

Reuters: MSCI's global equities gauge rose and U.S. government bonds rallied while the dollar fell on Monday as investors welcomed the incoming U.S. president's selection of fund manager Scott Bessent as the next U.S. Treasury secretary. Wall Street indexes closed higher with the S&P 500 and the Dow touching intraday records as investors approved of Donald Trump's choice. Investors said they were hoping for tax cuts as well as fiscal caution from Bessent. U.S. Treasury yields fell sharply as bond investors bet on a more moderate than feared U.S. fiscal trajectory. In an interview published on Sunday, Bessent told the Wall Street Journal that both tax and spending cuts were priorities.

And Bessent told CNBC earlier in November, before his selection as Treasury secretary, that he would recommend "tariffs be layered in gradually." "Bessent understands a lot of different asset classes and is going to help Trump stay very sensitive to market reactions," said Carol Schleif, chief investment officer, BMO family office noting that investors worried that other candidates for the job would take a hard stance on tariffs and spending and think less about the potential market reaction. "Markets are pretty self-centered. They want to make sure people are paying attention to them or they throw a tantrum."

The Dow Jones Industrial Average rose 440.06 points, or 0.99%, to 44,736.57,which was a record closing high. The S&P 500 rose 18.03 points, or 0.30%, to 5,987.37 and the Nasdaq Composite rose 51.18 points, or 0.27%, to 19,054.84. MSCI's gauge of stocks across the globe rose 3.84 points, or 0.45%, to 857.97 while Europe's STOXX 600 index had closed up 0.06% earlier. The European index hit a two-week high during its trading session, boosted by the Bessent nomination and comments from the European Central Bank chief economist on monetary policy easing.

In a trading week shortened by Thursday's U.S. Thanksgiving holiday, key events will include the release of October Personal Consumption Expenditures, the latest GDP estimate and U.S. Federal Reserve minutes from its last meeting. Traders are hoping for a Fed rate cut next month, opens new tab, though bets have been dialled back in recent weeks. In Treasuries, the yield on benchmark U.S. 10-year notes fell 14.1 basis points to 4.269%, from 4.41% late on Friday while the 30-year bond yield fell 13.9 basis points to 4.4562%.

The two-year note yield, which typically moves in step with interest rate expectations, fell 10.5 basis points to 4.264%, from 4.369% late on Friday. "He's a Wall Street guy, he's very good at what he does. He's not an extremist to the left or right. He's a sensible, smart businessman, and I think the market likes that, and he's anti-deficit," said Tony Farren, managing director at Mischler Financial Group, referring to Bessent. In currencies, the dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.56% to 106.89. The euro was up 0.74% against the dollar at $1.0494 while against the Japanese yen, the dollar weakened 0.37% to 154.16.

The euro had fallen sharply this month on worries over Trump tariffs, deteriorating economic conditions and signs of an escalation in Russia/Ukraine war. Oil prices fell more than $2 per barrel after reports that Israel and Lebanon had agreed to the a deal to end the Israel-Hezbollah conflict, citing officials from Israel, Lebanon, the U.S. and France. U.S. crude futures settled down 3.23% or $2.30 at $68.94 per barrel and Brent finished at $73.01 per barrel, down 2.87% or $2.16 on the day.

Bitcoin fell more than 2% to $94,811.03 after hitting a record of $99,830 on Friday as investors bet on a friendly regulatory environment for cryptocurrencies under Trump. Gold prices fell sharply, breaking a five-session rally, as reports of Israel nearing a ceasefire with Hezbollah, coupled with Trump’s Treasury secretary pick, tarnished demand for the safe-haven precious metal. Spot gold fell 3.14% to $2,627.27 an ounce. U.S. gold futures fell 2.56% to $2,640.40 an ounce.

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