**U.S. Dollar Hits Four-Month High Amid Market Anticipation for New Administration**

The U.S. dollar surged to a four-month peak on Tuesday, buoyed by ongoing market optimism surrounding the incoming Trump administration and expectations of a more stringent Federal Reserve policy. As of 04:00 ET (09:00 GMT), the Dollar Index, which measures the greenback against a basket of six major currencies, rose by 0.3% to reach 105.740 — its strongest level since early July.

**Market Reacts to the Trump Trade**

The dollar’s strength has been largely driven by traders positioning themselves for potential benefits stemming from the upcoming Trump administration. With the Republican Party poised to maintain control of both houses of Congress come January, the market speculates that this could facilitate the implementation of significant policy changes, including tax cuts and inflationary tariffs.

According to the CME Group’s FedWatch Tool, the likelihood of a quarter-point interest rate cut by the Federal Reserve in December has decreased from nearly 80% last week to about 69%. Analysts at ING noted, “There is an emerging narrative that this time around, unlike in 2016, Donald Trump is prepared to take action immediately upon taking office,” which could sustain the dollar’s momentum and diminish the expectation that substantial initiatives will take time to materialize.

**Euro Under Pressure as Economic Concerns Grow**

In European trading, the EUR/USD pair fell 0.3% to 1.0623, bringing the euro close to a seven-month low. Sentiment towards the single currency has been affected by the uncertainty surrounding the Trump administration and persistent economic weaknesses in the region. Trump has issued warnings that the eurozone may “pay a big price” for failing to purchase sufficient U.S. exports, raising fears of a potential trade conflict at a time when Europe is already grappling with economic challenges.

Meanwhile, German inflation data confirmed an increase to 2.4% in October, reinforcing concerns that the European Central Bank may remain under pressure to ease monetary policy further. ING analysts suggest that “EUR/USD looks poised to test 1.0600, with our end-year target at 1.05 coming into view.”

**British Pound Reacts to Labour Market Signals**

The GBP/USD exchange rate dropped 0.4% to 1.2814 after the latest UK unemployment figures showed an unexpected rise to 4.3% for the three months ending in September, up from 4.0% in the previous quarter. This development follows the Bank of England’s recent interest rate cut, marking the second reduction this year. Attention now shifts to an important speech by BoE Governor Andrew Bailey scheduled for Thursday, where traders will seek clarity on future monetary policy in light of the new Labour government’s budget plans.

**Chinese Yuan Hits Three-Month Low Amid Economic Pressures**

The yuan weakened against the dollar, with USD/CNY rising 0.3% to 7.2375. The currency’s decline can be attributed to a lackluster response to recent fiscal measures from Beijing, coupled with increasing economic strain from the anticipated policies of the Trump administration.

Moreover, USD/JPY rose 0.2% to 153.94, remaining within close range of recent three-month highs, as traders navigate the ongoing volatility and potential risk of government intervention. The Japanese yen continues to feel the effects of political uncertainty following the ruling Liberal Democratic Party’s loss of its parliamentary majority.

**Market Outlook for Forex Traders**

As traders move into the latter part of the week, attention must be paid to both economic data releases and geopolitical developments that could influence currency pairs. The strengthening dollar reflects not only market sentiment but also the potential for an extended period of restrictive monetary policy from the Fed. Conversely, economic challenges in Europe and the UK present opportunities and risks that forex traders must remain vigilant of in the coming sessions.