Dollar weakens as markets react to Bessent selection – Scotiabank

The US dollar (USD) begins Thanksgiving week on the defensive as markets react to President-elect Trump’s selection of Scott Bessent as Treasury Secretary, notes Shaun Osborne, Chief FX Strategist at Scotiabank.

Markets See Treasury Secretary Election as Moderating Force

“Bessent, a hedge fund manager with more market-friendly views (pro-growth, hawkish on the federal deficit, favors a gradualist approach on tariffs) is seen as someone who can moderate the president’s more aggressive policy initiatives. elect. He has also said he wants to preserve the USD’s status as the world’s reserve currency. Stocks are mostly firmer in Europe and US stock futures are positive.”

“Treasury bonds are outperforming other major bond markets by 5-6 basis points. The slight drift in the USD does not mean its post-election bounce is over. Last week I noted that some market participants might want to square off long positions in USD ahead of the US holiday break this week and the Bessent news is a good excuse to do so. The USD is unlikely to lose too much ground, particularly as much of the USD’s recent strength has been tied to reports. of solid data and the resulting fit on Fed policy expectations.”

“And the data reports we’ll get this week from the US—GDP, PCE primarily—they could simply encourage markets to dial back expectations of Fed easing a little further. The core PCE is expected to show a 0.3% increase in the month of October for a 2.8% increase on the year, versus the 2.7% in September. Firm data may reinforce Fed hawks’ concerns that progress on inflation has slowed. Recall that core PCE was around 2.6% year-on-year in June.”