By Rae Wee
SINGAPORE- The dollar charged higher on Monday and drove its peers to multi-year lows after a blowout US jobs report underscored the strength of the world’s largest economy and muddied the outlook for further Federal Reserve rate cuts this year.
The greenback surged to its highest in over two years on Monday against a basket of currencies to peak at 109.98 extending a rally from last week.
Trading was thinned in the Asian session with Japan markets closed for a holiday, but nonetheless moves in the foreign exchange market were volatile and other currencies notched fresh lows on the back of the dollar’s strength.
The euro hit its weakest level since November 2022 at $1.0275, while sterling was one of the biggest losers as it slid more than 0.5 percent to a 14-month low of $1.2128
The pound has been under pressure by concerns at home over rising borrowing costs and growing unease over Britain’s finances. It tumbled 1.8 percent last week.
Friday’s data showed US job growth unexpectedly accelerated in December while the unemployment rate fell to 4.1 percent as the labor market ended the year on a solid footing, leaving traders heavily scaling back bets of Federal Reserve rate cuts this year.
Markets are now pricing in just 27 basis points worth of Fed rate cuts this year, down from roughly 50 bps at the start of the year.
With Wednesday’s reading on US inflation up next, any upside surprise could threaten to close the door on easing altogether. A slew of Fed officials are also due to speak this week.
“This latest round of data underlines the fact that US economic exceptionalism remains a key market theme to start 2025,” said Nick Rees, head of macro research at Monex Europe, of the nonfarm payrolls report.
“The US labor market has stabilized but is not continuing to unwind, and that combined with upside inflation risks stemming from the new (Donald) Trump administration … should support an extended pause to easing by the FOMC.” — Reuters