FX Update: USD reacts to Trump nomination of Bessent

Trump’s nomination of Scott Bessent saw the US dollar weaker overnight, with less of an impact that one might have thought likely on USDCNH, given that China is at the center of Trump’s tariff “threat” and Bessent is theoretically less hawkish on trade policy than other options. USDCNH only gapped slightly lower overnight and still trades within the range of the latter part of last week. It’s doubtful that China wants to allow significant volatility in USDCNH as a rule, but it could allow the USDCNH to pull higher if it wants to use the exchange rate as a negotiating tool under a Trump administration. A signal that it is doing so would be a rise into the 7.30+ area in the coming weeks, but no visibility here. To the downside, 7.20 and 7.15 loom as areas of note.

Top highlights for the rest of the week ahead: (times are GMT where shown):

Note that this is Thanksgiving week in the USA, with many traveling on Wednesday and taking off both Thursday and Friday in any case, even if US markets are only fully closed on Thursday itself.

• US Nov. Consumer Confidence (Tue 1500) – an odd surge in confidence last month that may have been on pro-Trump respondents expressing enthusiasm. Could take another few months or more to have a “cleaner” reading, though the market long ago lost interest in this survey.
• US 5-year Treasury auction (1800) All treasury related activity worth watching as long as US yields are elevated. This follows Monday’s 2-year auction and a 7-year auction on Wednesday.
• FOMC Minutes (Tue 1900) Worth watching for the quality of the debate within the Fed, but Powell and company are very much looking at incoming data – and Trump administration policy will only impact beyond Jan 20. Market watching for risks of a Powell-Trump showdown.
• Australia Oct. CPI (Wed 0030) Given RBA unwillingness to kick off rate cut cycle, the sensitive side of the data would be on a downside surprise.
• RBNZ Official Cash Rate (Wed 0100) – the market looking for at least 50 basis point here and they could even cut 75 (about 25% odds according to market pricing). NZD is picking up this risk, it appears and a larger cut could see AUDNZD sticking a move higher above the key 1.1150. The Aussie could use some help from commodities prices or China headlines on stimulus – really only the aggressive RBNZ and hawkish RBA that are supporting an upside focus for now.
• US Weekly Initial Jobless Claims (Wed 1330) These have been so incredibly low for so long save for a few minor surges that bears on the US economy have given up on this indicator. But strong impact if there is a significant upside surprise in claims.
• US Oct. PCE Inflation (Wed 1500) A minor or even slightly more major input into the December rate decision if it is higher than expected – labor market data more important.
• Germany Nov. Flash CPI (Thu 1300) – energy prices a forward risk, but inflation levels have been muted in Germany, though they slowed their descent already in the spring.
• Japan Tokyo Nov. CPI (Thu 2350) – Market may be touchy on any inflation data out of Japan.
• France Nov. Flash CPI (Fri 0745) – Inflation has continued slowing in France, at 1.2% YoY in Oct.
• Germany Nov. Unemployment Rate (Fri 0855) – the rate is rising toward the pandemic highs, hitting 6.1% in Oct.
• Eurozone Nov. Flash CPI estimate (1000) – core inflation on a Eurozone-wide basis has only descended to 2.7% as of October, a level it first hit back in April. If the Euro remains weak and begins to threaten parity in the US dollar, the ECB may have no choice but to wax more cautious on the cutting path from here.

Table: FX Board of G10 and CNH trend evolution and strength.
Note: the FX Board trend indicators are only on a relative scale and are volatility adjusted. Readings below an absolute value (positive or negative) of 2 are fairly weak, while a reading above 3 is quite strong and above 6 very strong.

Could the USD strength have peaked for now? US 10-year yields are at an almost 2-week low, and are a solid coincident indicator for some US dollar consolidation, if not for how deep it could prove. We have a holiday week ahead and end-of-the-month before a long wait for the arrival of the Trump administration on January 20. Elsewhere, funny to see CAD as strong when you look at a USDCAD chart, but take a look at GBPCAD and you get the idea. Euro weakness is still pronounced, but a huge bounce from Friday lows.

Table: FX Board Trend Scoreboard for individual pairs.
EURSEK is trying to piece together a new uptrend – the break below 11.55-ish key to watch there. and AUDNZD status is vital this week on Wednesday’s RBNZ. Gold’s shorter-term trending status also critical here as the Bessent news triggered a sharp correction.