The dollar hit a two-year high against major currencies on Monday, as strong U.S. jobs data late last week prompted traders to back off expectations for further interest rate cuts from the Federal Reserve. The pound was the biggest decliner.
The dollar index, which measures the U.S. currency’s movement against a basket of major currencies, reached its highest level since November 2022. Recent moves have pushed the euro below $1.02, bringing the single currency closer to parity with the dollar for the first time in more than two years.
Friday’s U.S. jobs report showed payrolls rose by 256,000 in December, well above consensus expectations and “raises further doubt about the need for the Fed to continue lowering interest rates this year,” MUFG said. said Lee Hardman, senior currency strategist at
The swaps market currently expects a decline of just one quarter point this year, with some analysts even predicting the easing cycle is over.
“The United States is on a different beat than the rest of the world,” said Guy Miller, chief investment strategist at insurance group Zurich, highlighting the country’s strong economic growth.
U.S. stocks, which sold off after Friday’s data release, were poised to fall again on Wall Street, with S&P 500 index futures down 0.8% and technology-heavy Nasdaq 100 index futures down 1.2%.
The pound hit a 14-month low and fell a further 0.8% to $1.211, the worst of any G10 currency. It continues to be a painful period for trading in UK assets following last week’s fall in gold.
British government bonds fell. The yield on the 10-year Treasury note rose 0.04 percentage point to 4.88%, moving towards a 16-year high hit last week. Gilts is struggling due to a combination of a global bond slide and concerns about the UK economy. Yields move inversely with prices.
“A tangible turnaround would require seeing either a commitment to cut spending or a slowdown in services inflation on Wednesday,” said William Vaughan, fixed income portfolio manager at Brandywine Global.
The euro fell 0.5% against the dollar to $1.019.
The European Central Bank’s chief economist, Philip Lane, said in comments highlighting transatlantic disagreements on monetary policy that are increasing pressure on the single currency, if the eurozone does not continue to cut interest rates. It warned that inflation in the euro area could fall below its 2% target.
He argued that borrowing costs should not “remain high for too long” because growth is so weak that “inflation could fall well below target”.
In contrast to current expectations that the Fed will cut rates by just one quarter point this year, the market expects the ECB to do this three or four times over that period.
Asia-Pacific stocks also fell on Monday. “People are surprised by the strength of the US economy,” said Jason Lui, head of Asia-Pacific equities and derivatives strategy at BNP Paribas. “With U.S. interest rates so high, liquidity will dry up in Asia and capital will either flow to the U.S. or stay there.”
Australia’s S&P/ASX 200 index fell 1.2%, and South Korea’s Kospi fell 1%. India’s Sensex fell 1.4%. Japanese markets were closed on Monday.
“Emerging market stocks traditionally perform better when US interest rates are low,” said Sunil Thirumalai, head of Asian equity strategy at UBS. “The Fed’s lack of rate cuts and weaker currencies mean less room for rate cuts in Asia.”
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Hong Kong’s Hang Seng index fell 1%, and mainland China’s CSI300 index fell 0.3%.
Mainland stocks have been steadily falling in recent months as hopes for a bazooka-style stimulus package from the Chinese government fade and worries about the economic impact of President Donald Trump’s second term grip the market.
“Some of the stimulus packages were a positive surprise,” Thirumalai said, adding that China remains in a “bear market.”
“For example, the expansion of the trade-in system to a wide range of consumer goods has happened faster than we expected,” he said.
Oil prices rose to a four-month high after the United States announced sweeping new sanctions on Russian oil on Friday. Brent crude oil prices, the international benchmark, rose 1.8% to $81.22 per barrel.
Investors are “at risk of buying too much into the theme of American exceptionalism,” said Andrew Pease, chief investment strategist at Russell Investments.
“Despite strong employment numbers, wages remain weak, putting downward pressure on inflation, and policy uncertainty is high,” he said, referring to President Trump’s tariffs and deportation plans. said.
Additional reporting by Ray Douglas
