Post-Election Dollar Soars as China Faces Deflation and Europe’s Crisis Deepens

The U.S. dollar continues to rise, driven by post-election speculation about tariffs, tax cuts, and Robert Lighthizer’s potential reappointment as trade chief. In China, weak inflation and worsening producer price deflation are dampening market confidence, despite a $1.4 trillion stimulus. The euro also weakened, pressured by political instability in Germany and concerns over U.S.-China economic tensions. Meanwhile, Bitcoin hit a record high, as “Trump trades” gain momentum, and the S&P 500 continues to climb. Investors await U.S. economic data and corporate earnings for further direction amidst ongoing political uncertainty.

CONTENTS:

• Dollar strengthens, China faces deflation.
• Dollar surges, China faces deflation, Germany’s instability.
• Dollar rises, China struggles, Europe weakens.

Post-Election Dollar Soars as China Faces Deflation and Europe’s Crisis Deepens

Dollar strengthens, China faces deflation

Post-Election Dollar Soars as China Faces Deflation The U.S. dollar continues to climb, bolstered by speculation of post-election tariffs and tax cuts, China’s ongoing battle with deflation, and political instability in Germany, which has caused the euro to drop to its lowest point in nearly five months. Despite Monday’s Veteran’s Day holiday shutting down bond markets, the dollar strengthened, fueled by reports on Friday (later denied) suggesting that Robert Lighthizer, a key figure behind Donald Trump’s tariffs during his first term, might be appointed as trade chief again. The dollar index approached a four-month high.

While tariff expectations are pushing the dollar higher, Lighthizer is known for advocating a weaker dollar to boost trade competitiveness, making the future direction uncertain. Investor Scott Bessent’s meeting with Trump on Friday has also spurred speculation, with Bessent and John Paulson emerging as top candidates for Treasury Secretary.

The euro and China’s offshore yuan were among the biggest losers, with the latter affected by disappointing inflation and poor economic news. China’s consumer prices in October rose at their slowest pace in four months, while producer prices dropped 2.9%. These indicators compounded concerns over Beijing’s lackluster stimulus measures, including a $1.4 trillion package to ease local government debt. However, new bank lending in October underperformed expectations, raising doubts about the effectiveness of the stimulus.

In Europe, Germany’s political crisis is deepening, with Chancellor Olaf Scholz potentially calling a vote of confidence, which could lead to snap elections as early as the new year. Meanwhile, Deutsche Bank lowered its forecast for the European Central Bank’s interest rate hikes, reflecting the risks from U.S. tariffs and Chinese demand.

In the U.S., “Trump trades” are gaining momentum, with Bitcoin hitting a record high on expectations that a Trump administration will foster a favorable environment for cryptocurrency. U.S. stock futures also surged, following strong corporate earnings, and the S&P 500 reached new heights. This week, markets will focus on U.S. consumer price and retail sales data, as well as any new developments on the Federal Reserve’s interest rate cuts.

Dollar surges, China faces deflation, Germany’s instability

Post-Election Dollar Soars as China Faces Deflation The U.S. dollar is strengthening due to a mix of post-election tariff and tax cut speculation, China’s deflationary struggles, and Germany’s political crisis. The euro has hit its lowest point in almost five months as the dollar continues to rise, even though bond markets are closed for the Veteran’s Day holiday. The dollar’s gains were fueled by speculation over the appointment of Robert Lighthizer, a key figure in Trump’s trade policies, as trade chief. Though Lighthizer is a proponent of a weaker dollar, market focus is primarily on tariff implications, pushing the dollar index near a four-month high.

Prominent investors Scott Bessent and John Paulson are rumored to be top contenders for the role of Treasury Secretary. However, the dollar’s rise is not without setbacks. The euro and China’s offshore yuan have weakened, with China facing slow consumer price growth and deeper producer price deflation. Despite a massive $1.4 trillion stimulus package, China’s efforts to boost the economy have fallen short, with lending also disappointing. The Hang Seng Index dropped more than 1%, while mainland Chinese stocks posted modest gains.

Meanwhile, Germany’s political turmoil continues, with Chancellor Scholz possibly calling for an earlier vote of confidence in the Bundestag, potentially leading to snap elections in the new year. In response to the risks posed by U.S. tariffs and China’s economic slowdown, Deutsche Bank has reduced its forecast for the European Central Bank’s terminal interest rate.

On Wall Street, so-called “Trump trades” are continuing to play out, with Bitcoin reaching a record high above $81,000 on expectations of a favorable regulatory environment for crypto under Trump. U.S. stock futures are also rising as the S&P 500 continues to hit new highs. As markets focus on the incoming political team in Washington, upcoming reports on consumer prices and retail sales, alongside strong corporate earnings, will provide further direction. Despite another quarter-point interest rate cut by the Federal Reserve, there’s uncertainty about how Trump’s policies will affect inflation, with fewer rate cuts expected by the end of next year.

Dollar rises, China struggles, Europe weakens

Post-Election Dollar Soars as China Faces Deflation The U.S. dollar continues to rise, driven by post-election speculation around tariffs, tax cuts, and China’s deflationary issues, alongside Germany’s political turmoil. Even though bond markets are closed for the Veteran’s Day holiday, the dollar gained momentum after reports that Robert Lighthizer, known for his protectionist stance, might be appointed as Trump’s trade chief. While tariff expectations favor the dollar, Lighthizer’s support for a weaker dollar could be a point of contention, adding complexity to market reactions.

In China, weak inflation and deepening producer price deflation are troubling markets, as new stimulus efforts fail to stimulate credit demand. China’s consumer prices increased at their slowest pace in four months, while producer price deflation worsened. A large $1.4 trillion stimulus package was approved, but it did little to reassure investors, especially with disappointing lending data. As a result, the Chinese yuan and the Hong Kong stock market were under pressure.

Meanwhile, the euro also weakened, impacted by tariff concerns, declining Chinese demand, and an ongoing political crisis in Germany. German Chancellor Olaf Scholz may call for a vote of confidence earlier than expected, potentially triggering snap elections. This, coupled with fears of the U.S.-China economic situation, led Deutsche Bank to revise its European interest rate forecasts down.

In the U.S., “Trump trades” continue to dominate, with Bitcoin hitting a record high amid expectations of favorable regulations under a Trump administration. Stock futures rose as the S&P 500 hit a new milestone. Markets will focus on upcoming U.S. consumer price and retail sales reports, while corporate earnings continue to exceed expectations. Despite the Fed’s recent quarter-point rate cut, the impact of Trump’s policies on inflation remains uncertain, with fewer rate cuts expected by the end of 2025.