Investing.com – The US dollar rose on Wednesday while the euro retreated ahead of a no-confidence vote in France later in the day that is likely to topple the fragile coalition government.
At 04:45 ET (09:45 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.1% higher at 106.465.
The dollar remains attractive
The dollar was in high demand Wednesday, boosted by its safe-haven status amid political turmoil in both South Korea and Europe, as well as ongoing conflicts in the Middle East and Ukraine.
“A lame duck government in Germany and possibly France today if a vote of no confidence is successful, plus this Korean news, will only add to confidence that relatively high interest rates and liquidity make the dollar the most attractive currency to park cash. currently in balance,” ING analysts said in a note.
Returning to the macro news, all eyes will be on the November report later in the session, especially with the widely viewed monthly magazine being released on Friday.
The release is also on the agenda, as is a speech by the Fed chairman in Washington.
“There is a risk that US macro data may weaken somewhat and the dollar may soften, but taking defensive positions in, for example, the Japanese yen or the Swiss franc could be expensive,” ING said.
According to CME’s FedWatch Tool, the market-implied probability of a quarter-point rate cut was 75% on December 18 last year.
The euro is under pressure due to the French political crisis
In Europe, yields fell 0.1% to 1.0501, with the common currency struggling to gain support as France’s political crisis comes to a head.
French lawmakers are preparing to vote later in the day on no-confidence motions that will almost certainly topple the government, with opposition parties seemingly unable to support Prime Minister Michel Barnier’s recent budget, which aims to reduce a significant budget deficit.
Moreover, data released earlier Wednesday showed that business activity across the eurozone fell sharply last month as the bloc’s dominant sector joined the manufacturing sector in contraction.
The final currency union HCOB, compiled by S&P Global and seen as a good gauge of overall economic health, fell from 50.0 to 48.3 in November.
“Whether it is European political risk, weak activity, the threat of trade wars or rising energy prices (EU gas supplies starting to come under pressure), there are many reasons to be underweight the euro,” ING said .
traded 0.1% higher at 1.2677, helped by remaining in expansion territory.
Bank of England Governor Andrew Bailey reiterated in an interview published on Wednesday that gradual interest rate cuts are likely over the coming year, adding that the process of falling inflation is well established.
“There is still some distance to go because although inflation has been on target over the summer, we have been saying for some time that we would probably be slightly above target again,” Bailey said.
The South Korean won is stabilizing
In Asia, the price stabilized at 1,414.26 after rising to 1,444.05 won in overnight trading – the highest level since November 2022.
South Korean President Yoon Suk-Yeol declared martial law on Tuesday in an effort to counter “anti-state forces” among his political opponents. However, this move was met with immediate backlash, including parliamentary rejection and public protests, leading him to withdraw the measure within hours.
The gains also offset initial losses when South Korea’s central bank held an emergency meeting to stabilize the domestic market.
rose 0.7% to 150.68 while falling 0.2% to 7.2730, with the Chinese currency bouncing from the previous day’s low of 7.3145, its weakest since November last year, helped by a stronger than expected central bank midpoint fixing.
fell 1% to 0.6421, falling to the lowest level since early August, after data showed Australia’s economy grew less than expected in the third quarter, raising expectations that the Reserve Bank will cut interest rates in early 2025.
