US Dollar Forecast: DXY Rises Amid Trump’s BRICS Tariff Threats, Gold Under Pressure

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Published: Dec 2, 2024, 15:27 GMT+00:00

Key Points:

US Dollar Index jumps as Trump warns BRICS nations against de-dollarization with 100% tariff threats.
Euro drops 0.65% to $1.0506, pressured by French political turmoil and rising risk premiums on French debt versus German bonds.
Gold prices slide to $2,644 as stronger dollar and rising U.S. Treasury yields reduce appeal for the non-yielding asset.

U.S. Dollar Strengthens on Geopolitical Tensions and Fed Expectations

The U.S. Dollar Index (DXY) climbed 0.77% to 106.714 on Monday, benefiting from its safe-haven status as geopolitical tensions and global economic risks drove demand. President-elect Donald Trump’s threats to impose tariffs on BRICS nations for any de-dollarization moves reinforced the greenback’s dominance, while upcoming U.S. economic data kept traders focused on Federal Reserve policy.

Currencies: Euro Slides Amid French Political Turmoil

Daily EUR/USD

The euro fell 0.65% to $1.0506 against the dollar as France’s political uncertainty unnerved investors. The far-right National Rally (RN) party signaled it may support a no-confidence vote against the government unless its demands on budget policies are met, raising fears of instability.

This turmoil pushed the risk premium on French debt higher, with the yield spread between French and German 10-year bonds widening to 85 basis points. The uncertainty weakened the euro further, while the dollar attracted safe-haven inflows.

Other major currencies also retreated against the dollar, as political instability in Europe and expectations for steady U.S. economic performance favored the greenback.

Trump’s BRICS Tariff Threats Boost Dollar Appeal

President-elect Trump escalated geopolitical tensions over the weekend, warning BRICS nations (Brazil, Russia, India, China, and South Africa) of 100% tariffs if they introduce an alternative to the U.S. dollar for global trade. This move highlighted the dollar’s central role in international commerce, reinforcing its appeal among investors.

Trump’s comments came amid growing global debate over de-dollarization. The tough stance signaled to markets that the U.S. intends to preserve its currency’s dominance, leading to renewed confidence in the dollar.

Gold Pressured by Rising Yields and Dollar Strength

Daily Gold (XAU/USD)

Gold prices edged lower to $2,644 per ounce as the dollar strengthened and U.S. Treasury yields rose. The benchmark 10-year Treasury yield climbed 4 basis points to 4.23%, reducing gold’s attractiveness as a non-yielding asset.

Despite geopolitical uncertainties, gold struggled to find support as traders focused on Friday’s payroll report and its implications for Federal Reserve policy. Key support remains at $2,607, with resistance near $2,670.

Treasury Yields and Fed Policy in Focus

Daily US Government Bonds 10-Year Yield

Rising Treasury yields added to the dollar’s gains, with the 10-year yield climbing to 4.23% and the 2-year yield reaching 4.22%. Market attention remains on Friday’s jobs report, which is expected to show 195,000 new jobs and a slight rise in unemployment to 4.2%.

Fed Chair Jerome Powell’s Wednesday speech will be pivotal, as traders assess the likelihood of a 25-basis-point rate cut in December. Markets currently price in a 65% chance of a cut, with limited expectations for further easing in 2025.

Market Forecast

The U.S. Dollar is positioned for further gains, supported by geopolitical tensions, strong Treasury yields, and robust safe-haven demand. The DXY is likely to test resistance at 106.50, with a move toward 107.00-108.00 possible if upcoming labor data supports dollar strength.

For gold, rising yields and dollar strength are expected to cap gains, keeping prices within the $2,607-$2,670 range unless a significant market shift occurs.

More Information in our Economic Calendar.

About the Author

James Hyerczykauthor

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.