Chief Macro Strategist
Summary: The US dollar gapped lower to start trading this week on the news that Trump will pick Scott Bessent for Treasury Secretary, a critical post for policy. Also, the very weak euro and whether a low is in for now.
Bessent as US Treasury Secretary news. This “headline risk” has now been cleared, as Trump announced his choice of Scott Bessent as Treasury Secretary on Saturday. As Bessent was considered one of the safest choices and someone who has broadcast a thorough list of the positions he favours for the role, we have a better understanding of how the US Treasury policy will shape up next year, though Trump himself can always weigh in and create new headline risks.
Bessent has touted a “3-3-3” policy, taking a page from Japanese prime minister Shinzo Abe’s “three arrows” policy platform from over a decade ago. The threes stand for 1) a goal of cutting the budget deficit to 3% of GDP over the next four years, while 2) creating 3% GDP growth through deregulation and tax cuts and 3) producing an additional 3 million barrels a day of oil production. Note that he sees the deficit reduction chiefly through a pro-growth agenda that boosts tax revenues. This is a classic supply-side agenda and is what helped Reagen and Trump 1.0 to juice growth at a cost of piling onto the US debt load. It is the combination of his thinking that he can achieve a pro-growth agenda while at the same time improving the debt trajectory that will be especially difficult to pull off. Bessent has said that the tax-cut portion of Trump’s agenda are his first priority. On spending and deficit reduction, an additional factor will be whether Elon Musk and Vivek Ramaswamy’s Department of Government Efficiency (DOGE) can add or subtract to Bessent’s efforts. Sentiment is very skeptical there.
On the critical issue of tariffs, Trump has declared the intent to make tariff bulldog Robert Lighthizer his “trade czar” – so we’ll have to see which of his advisers he listens to more on how aggressive to go on tariffs. Most view tariffs as powerfully USD-positive, and Bessent has said that he believes tariffs only create a step-increase in pricing, not an inflationary dynamic. He has said in the past that he is more in favour of using them as a negotiating tool to get trading partners/rivals to change behavior, but has sounded more aggressive recently than previously (likely knowing it is an important factor in getting the appointment.)
Given the US-China rivalry and a US president that is bent above all on ripping up the globalized economic order that has seen US manufacturing capacity hollowed out, there couldn’t be more at stake for the US dollar – which is far too strong for the long-term that Trump envisions. Bessent claims that he favours “maintaining the status of the dollar as the world’s reserve currency”. How and whether he succeeds will likely prove one of the most critical issues for global markets in the coming years. And saving the US dollar likely means weakening it significantly, as a strong US dollar does not work well for much of the world and certainly won’t rebalance the global order. Bessent understands that we are at a Zeitwende in the structure of global markets and it is likely what has motivated him to move from his successful multi-decade stint as a hedge fund manager to want to take on this role: “We are going to have to have some kind of grand global economic reordering. I’d like to be a part of it I’ve studied this”. Bessent will prove a strong presence in the Trump administration and his word will carry significant weight in the market.
Chaotic action in the euro – a climax low in EUR/USD for now? Some rather brutal price action in the euro on Friday in the wake of the very weak preliminary Eurozone services PMI, which saw EURUSD briefly plunging through 1.0350 before rebounding above 1.0400 into the close and even as high as 1.0500 in Asian trading overnight after the Scott Bessent news. It feels like a near-term trough and we could see 1.0600 or even 1.0700 again without neutralizing the strong down-trend. EUR/CHF saw similar price action on Friday and put in an impressive “hammer” on the daily candles on Friday – establishing a double-bottom for now just above 0.9200. It is a bit worrisome at the margin for Europe and the euro that the 10-year France-Germany has widened to new highs north of 82 basis points this morning – something to monitor.
Chart: USDCNH
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.
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.
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