**Forex Market Update: Dollar Strengthens Amid French Political Turmoil and China’s Economic Challenges**

SINGAPORE (Reuters) – The U.S. dollar exhibited resilience on Tuesday, bolstered by ongoing political instability in France, which has exerted downward pressure on the euro. Concurrently, concerns over tariff risks and indicators of slowing economic growth in China have driven the yuan to a 13-month low.

Though the Japanese yen has experienced a slight retreat, it remains close to a six-week high against the dollar, as market participants grow increasingly optimistic about the Bank of Japan considering an interest rate hike this December.

The euro opened the month on a bearish note, sliding 0.7% on Monday to settle at $1.0487 during the Asia session. This decline is largely attributed to fears of a governmental collapse in France due to a budget stalemate. As the euro continues to struggle, it remains the weakest among the G10 currencies.

The combination of positive U.S. manufacturing data and a significant fall in Chinese bond yields has exerted pressure on the yuan, pushing it down past critical support levels towards 7.3 per dollar. This scenario opens the door for further dollar strength. As Brent Donnelly, president of Spectra Markets, noted, “It’s much easier for USD/G10 to go up when USD/CNH isn’t stuck in the mud.”

China’s decision to fix the yuan’s trading band at its weakest point in over a year prompted traders to offload the currency, which hit 7.2996 per dollar, down from 7.24 on Friday.

On the commodity front, the Australian dollar decreased by 0.7% on Monday, trading down slightly at $0.6472. Economic indicators from Australia painted a mixed picture, with a current account deficit exceeding expectations being countered by a notable increase in government spending, which is likely to spur economic growth. The New Zealand dollar also experienced a minor decline, inching 0.2% lower to $0.5876.

The yen, which was the sole G10 currency to gain against the dollar last month, reached a peak of 149.09 on Monday but later traded at around 150.15. Market sentiment suggests a nearly 60% likelihood of a 25 basis point rate increase in Japan this December, which traders will monitor closely.

Looking to the U.S., all eyes are on the upcoming employment data due on Friday, which will guide expectations regarding potential interest rate cuts by the Federal Reserve later this month. Currently, markets are pricing an even chance for a rate reduction. Additionally, job openings data scheduled for release later on Tuesday may further influence trader sentiment.

Historically, December has been a month where the dollar may experience seasonal weakness due to increased foreign currency purchases by corporations. However, uncertainty surrounding the incoming administration of President-elect Donald Trump is contributing to a more stable dollar environment for now. Trump’s recent comments suggesting potential tariffs unless BRICS nations align with the dollar as a reserve currency have reinforced the perception that he may not seek to weaken the dollar.

Analysts at Rabobank believe that the euro could potentially drop to parity with the dollar around mid-next year, a scenario that may align with the anticipated introduction of new tariffs by the Trump administration.

As forex traders navigate this complex environment, it will be essential to stay informed on geopolitical developments, economic data releases, and central bank policies that could impact currency valuations in the weeks and months ahead.

Image from Reuters via Free Malaysia Today, licensed under CC BY 4.0.