The dollar weakened on Monday, retreating against major currencies as traders viewed Donald Trump's selection of Scott Bessent for Treasury Secretary as a balanced and stabilising choice. The greenback's decline marked a pause in its recent rally, with the euro and Aussie dollar leading gains. Meanwhile, Bitcoin slipped below US$97,000 before recovering some losses.

Bessent's nomination, viewed as a signal of continuity, appears to have tempered expectations for sweeping policy shifts. Running the macro hedge fund Key Square Group, Bessent is anticipated to prioritise economic and market stability while supporting Trump's fiscal plans, including tax cuts and tariffs. "He brings this sense of almost gradualism to the administration as opposed to taking a big bang approach," said Brian Jacobsen, chief economist at Annex Wealth Management, on Bloomberg TV.

Markets globally reacted with mixed movements. Australian shares and US equity futures climbed, while contracts in Japan signalled early gains. Hong Kong futures remained steady. The Bloomberg Dollar Spot Index's eight-week rally—its longest in more than a year—showed signs of cooling.

The dollar's strength over recent weeks had been fuelled by investor optimism surrounding Trump's fiscal policies. Speculative investors turned increasingly bullish, with the euro hitting a two-year low and the Swiss franc weakening to levels unseen since July.

In other markets, US stocks ended last week on a high note, with the S&P 500 rising 0.4%. Beneficiaries of the incoming administration's pro-business stance were key drivers, while the Treasury yield curve flattened after strong US business activity data. Benchmark 10-year yields edged lower, and Australia's equivalent dropped six basis points on Monday.

Oil prices steadied following the ongoing Ukraine conflict, with West Texas Intermediate crude maintaining levels above US$71 a barrel. Gold hovered near US$2,700 an ounce, capping its strongest week since March 2023.

This week, traders will focus on key economic indicators. Japan's inflation data, due amidst speculation over December policy changes by Bank of Japan Governor Kazuo Ueda, is highly anticipated. In New Zealand, the Reserve Bank is expected to announce a rate cut on Wednesday.

In Europe, inflation and growth reports will dominate attention, while the US Federal Reserve's November meeting minutes and consumer confidence data are expected to shed light on the central bank's outlook for rate cuts in 2024. "Weaker US data would see pricing for a 25 basis point cut rise back above 50%, which should support equity risk and be a headwind for the US dollar," commented Chris Weston, head of research at Pepperstone Group in Melbourne.

Trump's decision to nominate Bessent for Treasury Secretary has also been positively received by markets, reflecting relief over the measured approach he is expected to bring to policy-making. His appointment signals an "America First" administration that may avoid isolationist tendencies, fostering stability in global markets.

Bloomberg