The US Dollar Index has extended today's gain to 0.8% on broad strength. It's particularly strong against the euro, which is struggling as France's left and right wing opposition appear to be united in efforts to oust Barnier after he invoked constitutional rules to push through a budget.
EUR/USD is down 105 pips to 1.0470, which erases all of last week's decline.
It's not just the euro though as the US dollar is up nearly 1% against the Australian dollar and 0.8% against the pound. It's an unwind of some dollar weakness late last week, likely on month-end flows. Treasury yields are also ticking higher today, up 3-5 bps across the curve.
On the fundamental side, surveys from the ISM and S&P Global showed improved (though still depressed) moods in the manufacturing sector.
This comment in the S&P Global survey from Chief Business Economist Chris Williamson caught my eye:
“The promise of protectionism has meanwhile led to an increase in input buying by some US producers, as they seek to front-run price hikes on imports from threatened tariffs."
Similarly, this was a comment in the ISM survey from a manufacturer:
"We are now working on our buying plan in light of potential increased tariffs on imports from China."
Those factors are going to be an interesting dynamic. I expect a burst of orders and trade before Trump takes office, but that could lead to a bust later. However we could also see a reorganization in supply chains, this was from a manufacturer in primary metals:
“After the election, we have seen an uptick in customers wanting to come back to the U.S. for making their products. We are working through these inquiries. They seem very motivated."
Lost in all the stock market gains, US manufacturing has been very week and in recession for nearly two years. Much of that is the give-back from the covid boom and supply chains but there is no strong consensus on what comes next.
ISM manufacturing (still a huge hole to climb out of):
