By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) – The euro rose marginally against the U.S. dollar on Wednesday, but fell off session highs after a widely expected collapse of the French government following a vote of no confidence by opposition lawmakers.
The dollar, on the other hand, was little changed overall as chances of a rate cut remained high in December amid signs the US economy was slowing.
The South Korean won, one of the biggest gainers on Tuesday, rose against the dollar, buoyed by suspected central bank intervention and the Treasury Department’s promise of “unlimited” liquidity support to markets. That came a day after South Korean President Yoon Suk Yeol declared martial law in a late televised speech, only to lift it hours later.
The euro rose slightly against the dollar at $1.0512, after far-right and left-wing lawmakers joined forces to support a vote of no confidence against Prime Minister Michel Barnier and his government, with a majority of 331 votes. Barnier is expected to soon offer his resignation and that of his government to President Emmanuel Macron.
“At this point the real question becomes how much worse the situation gets from here,” said Eugene Epstein, head of trading and structured products, North America, at Moneycorp in New Jersey.
“We have no clarity whatsoever about what the outcome of the votes will be and how long the budget will actually be used as leverage to get the political interests of all parties in order.”
Three sources told Reuters that French President Emmanuel Macron plans to quickly install a new prime minister if his government falls on Wednesday.
Barnier’s resignation would deepen the political crisis in the eurozone’s second-largest economy and put further pressure on the euro.
Investors also digested comments from European Central Bank President Christine Lagarde at a parliamentary hearing on Wednesday. She said the ECB will continue to cut interest rates but did not commit to any easing.
The next ECB meeting is on December 12, and economists overwhelmingly expect another 25 basis points (bp) rate cut, the fourth step this year.
THE FED STILL SEEMS TO CUT RATES IN DECEMBER
In the United States, the index remained stable at 106.33. Wednesday’s figures did not shake expectations of an interest rate cut later this month.
US private labor costs rose at a moderate pace in November but fell short of expectations, while annual wages for workers who remained in their jobs rose slightly for the first time in 25 months.
Private payrolls rose by 146,000 jobs last month after rising by a downwardly revised 184,000 in October, the ADP report showed. Economists polled by Reuters had forecast private employment to rise by 150,000, after a previously reported increase of 233,000 in October.
At the same time, activity in the US services sector slowed in November after big gains in recent months. The Institute for Supply Management’s non-manufacturing purchasing managers’ index fell to 52.1 last month after rising to 56.0 in October, the highest level since August 2022. Economists polled by Reuters had forecast that the services PMI would drop to 55.5.
U.S. Fed Funds futures increased the odds of a 25 basis point cut this month to 78% from 73% late Tuesday, while the odds of a pause in easing were reduced to 22% from 27% the day before, according to FedWatch of the CME.
“It is possible that the Fed will cut again in December, which could put tactical pressure on the dollar as the market is already long dollars,” said Vassili Serebriakov, currency strategist at UBS in New York. “But unless the US data really deteriorates, which we don’t see at the moment, any dollar weakness will be short-lived.”
The dollar moved higher after St. Louis Federal Reserve President Alberto Musalem said Wednesday he expects the Fed to continue cutting rates but said he is keeping options open at the Dec. 17-18 meeting. Musalem will be a voter on the Federal Open Market Committee next year.
Fed Chairman Jerome Powell appeared to voice support later on Wednesday for a slower pace of coming rate cuts, noting that the economy is now stronger than the central bank expected in September when it began easing.
In South Korea, the won rose on Wednesday after plummeting overnight in the wake of the president’s declaration of martial law, which was reversed hours later.
The dollar last fell 0.8% to 1,413.6 won after jumping overnight. But politics remained in focus and South Korean lawmakers on Wednesday introduced a bill to impeach President Yoon.
Dealers said the Bank of Korea may have supported the won by selling dollars during Wednesday’s open.
The dollar also climbed against the yen, rising 0.6% to 150.52, after media reports cast doubt on market expectations that the Bank of Japan would raise interest rates this month, which would push up government bond yields make it go down.
Currency
bid
prices
at 4
December
09:10
pm GMT
Description RIC Latest US price YTD High Low
ion Close Chang Pct bid Bid
Previous e
Session
Dollar 106.3 106.32 -0.01 4.86% 106.72 106
index% .09
Euro/Dol 1.0515 1.0509 0.05% -4.75% $1.054 $1.
lar 4 047
2
Dollar/Y 150.52 149.26 0.83% 6.71% 151.22 149
nl.58
Euro/yen 157.90 157.18 0.7% 1.7% 158.65 156
.99
Dollar/S 0.8842 0.8862 -0.23 5.06% 0.8879 0.8
erase%82
Sterling 1.2702 1.2673 0.24% -0.17% $1.272 $1.
/2 263 dollars
Dollar/C 1.4064 1.407 -0.04 6.1% 1.4083 1.4
anadic %052
Aussie/D 0.6439 0.6487 -0.72 -5.54% $0.648 $0.
dollar % 8 639
9
Euro/Switzerland 0.9295 0.9314 -0.2% 0.1% 0.9327 0.9
ss 292
Euro/Ste 0.8275 0.829 -0.18 -4.53% 0.8301 0.8
rling% 27
New Zealand 0.5859 0.5882 -0.37 -7.26% $0.588 0.5
Dollar/D% 3 83
olar
Dollar/N 11.0481 11.0478 0% 9.01% 11.097 11.
Orweg 5 017
4
Euro/Nor 11.6142 11.6262 -0.1% 3.52% 11.644 11.
road 601
Dollar/S 10.9175 11.0039 -0.79 8.45% 11.040 10.
weden % 9 904
Euro/Swedish 11.4821 11.5695 -0.76 3.21% 11.586 11.
den % 5 481
1
