Dollar on the back foot as Trump trade takes a breather
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The so-called Trump trade suffered a meaningful reversal last week, with possible profit taking and month-end rebalancing flows also contributing to a broad dollar retracement.
As we go into year-end, markets should refocus away from Trump’s cabinet picks (the most important have already been made) and back towards central bank meetings. None of the critical ones will take place this week, but uncertainty over upcoming decisions means that the remaining data points are critical. Friday’s payrolls report stands out, but Euro Area retail sales provides one of the few hard data references for the ECB before its momentous decision on 12th December.
Figure 1: G10 FX Performance Tracker [vs. USD] (1 week)

Source: LSEG Datastream Date: 02/12/2024
USD
The Thanksgiving holiday in the US traditionally means a shortened week of light trading, and last week was no exception. Data on inflation, incomes, durable goods and jobless claims remained consistent with healthy growth amidst a thriving labour market.
This week’s payroll report is doubly important, both because it is the last one before the December Federal Reserve meeting, and also because the previous one was muddled by the Boeing strike and the hurricanes that hit Florida and the South. We think the Fed’s decision to either cut rates or leave them unchanged later in the month will be crucially dependent on the outcome of this report and the inflation one the following week. As things stands, markets see around a 60% chance of a 25bp cut this month, so there is plenty of scope for a repricing in either direction.
EUR
November flash inflation data in the Eurozone confirmed that price pressures remain steady. They are somewhat above ECB targets, but have yet to show any worrisome signs of reacceleration, while monthly prices are actually falling, in spite of solid growth in wages. Consumer confidence data, however, is displaying a similar malaise to its business counterpart, and confirms the remarkable gloom that has settled over the European economy.
Figure 2: Euro Area Inflation Rate (2017 – 2024)

Source: LSEG Datastream Date: 02/12/2024
Another front may have opened up for the ECB in the French budget negotiations, as French risk premia spike on fears of a government collapse. However, ECB pushback has forced markets to nearly price out the chance of a jumbo 50bp cut later this month, which is providing some support for the common currency around current levels.
RON
Meanwhile, attention in Romania is fully focused on the electoral marathon, to which we dedicate today’s RON section. In the context of the presidential runoff, which we wrote about extensively a week ago, we already know that Georgescu’s rival will be the centre-right Elena Lasconi. This means that Prime Minister Ciolacu, who was the favourite in the polls, lost the competition after the first round. The Romanians will make their final choice this Sunday.
Meanwhile, we have been keeping a close eye on the parliamentary elections, in which the balance of power has tipped to the other side of the political spectrum. The centre-left Social Democratic Party (PSD), which is widely seen as pro-NATO, pro-EU & pro-Ukraine, again won the largest number of votes. The engagement of a centre-right (but pro-Western) Save Romania Union (USR), represented by the aforementioned Lasconi might be inevitable which seems utterly challenging considering the past relationship between the parties and the ‘anti-establishment’ approach of the USR presidential candidate. This makes the last part of the marathon all the more important.
PLN
The resilience of the zloty in the face of a plethora of geopolitical headwinds is undoubtedly noteworthy, all the more so given that the bulk of the US election movement on the EUR/PLN pair has already been recovered and we are back below the psychological threshold of 4.30. Also of note, the zloty was the world’s second best-performing currency last week, second only to the Japanese yen.
Inflation surprised slightly downwards (although we are now focusing more on the less volatile core measure of the index) and the key pro-inflationary factor of wage growth declined further (but still remains in the double digits), which should favour the dovishness of the MPC. In this regard, Thursday’s press conference of President Glapinski will be valuable. We are looking towards a broad-based forward guidance in view of the change in the status quo on the global geopolitical scene and the rather slow recovery of the Polish economy.
Figure 3: Poland Wage Growth & CPI Inflation (2019 – 2024)

Source: Bloomberg 02/12/2024
In order for the meeting to generate meaningful volatility, we would need fairly clear and decisive announcements from the President, which we are unlikely to see. It is all the more difficult to expect a change in the level of interest rates, which will likely be discussed in the first quarter of the coming year. Thus, we remain attentive to outside news.
HUF
The aforementioned disparity was very pronounced last week as the weakening of the US dollar supported not only the higher-beta zloty but also “the local safe haven”, as the koruna is often called, leaving the forint as the only one to continue on its losing streak. Even in the face of intense pessimism towards the Hungarian economic outlook, however, the scale of the weakening of the Hungarian currency is puzzling.
Thursday (retail sales) and Friday (industrial production) will bring valuable readings of hard macroeconomic data for October, we do not expect them to have a significant impact on the forint, however. We are waiting for positive impulses – particularly external ones – which could put an end to the Hungarian currency’s plunge.