The dollar hit a two-year high against major currencies on Monday, with the pound the biggest loser, as strong US jobs data late last week prompted traders to cut expectations of further rate cuts. interest rates from the Federal Reserve.
The dollar index, which tracks the US currency against a basket of major currencies, hit its highest level since November 2022. The latest moves pushed the euro below $1.02, with the common currency approaching parity with the greenback for the first time in more than two years.
The U.S. payrolls report on Friday showed 256,000 jobs were added in December, blowing past consensus estimates and casting “further doubt on the need for the Fed to continue cutting rates this year,” the top strategist said. of MUFG Coin, Lee Hardman.
Exchange markets now expect just a quarter-point cut this year, with some analysts even predicting the easing cycle is over.
“The United States is dancing to a different tune than the rest of the world,” said Guy Miller, chief investment strategist at the Zurich insurance group, pointing to strong U.S. economic growth.
U.S. stocks, which sold off on Friday after the data release, were poised to fall again at the Wall Street open, with S&P 500 index futures up 0.8 percent and those for the technology-focused Nasdaq 100, with 1.2 percent.
The pound hit a 14-month low, falling 0.7 percent to $1,213 and the worst among G10 currencies. The decline continues a period of bruising trading for UK assets after last week’s gilt-edged sell-off.
UK government bonds have weakened. The 10-year yield rose 0.02 percentage point to 4.86 percent, returning to last week’s 16-year high. Gilts have suffered as a global bond sell-off mixed with worries about the UK economy. Yields move inversely to prices.
“For a concrete turnaround, we’ll need to see either a commitment to cut spending or a softening of utility inflation on Wednesday,” said William Vaughan, a bond portfolio manager at Brandywine Global.
In late morning trading, the euro was down 0.6 percent against the dollar at $1.0187.
In comments that underscore the transatlantic divergence in monetary policy that has increased pressure on the single currency, Philip Lane, the European Central Bank’s chief economist, warned that eurozone inflation could undershoot its 2 percent target if the region does not continue to cut interest rates. .
He argued that borrowing costs should not “remain too high for too long” as growth could be so weak that “inflation could fall materially below target”.
Contrary to current expectations for just one Fed rate cut per quarter this year, markets anticipate three or four such moves by the ECB in that time.
Asia-Pacific shares also fell on Monday. “People are surprised by the economic strength in the US,” said Jason Lui, head of Asia-Pacific equity and derivatives strategy at BNP Paribas. “With US interest rates so high you will have a liquidity flight to Asia, with capital flowing to the US or staying there.”
Australia’s S&P/ASX 200 index fell 1.2 percent, while South Korea’s Kospi fell 1 percent. India’s Sensex fell 1.4 percent. Japanese markets were closed on Monday.
“Emerging market stocks traditionally perform better when US interest rates are lower,” said Sunil Tirumalai, head of Asia equity strategy at UBS. “No Fed cuts and weak currencies mean less room for Asian rate cuts.”
Hong Kong’s Hang Seng index fell 1 percent, while mainland China’s CSI 300 weakened 0.3 percent.
Shares in mainland China have fallen steadily in recent months as hopes of a bazooka-style stimulus from Beijing fade and worries over the economic impact of Donald Trump’s second term hit the market.
“Some stimulus measures have been a positive surprise,” Tirumalai said, adding that China was still in a “bear market”.
“The expansion of the trade scheme to a wider range of consumer goods, for example, came earlier than we thought,” he said.
Oil prices rose to their highest level in four months after the US announced sweeping new sanctions on Russian oil on Friday. Brent crude, the international benchmark, rose 1.7 percent to $81.14 a barrel.
Andrew Pease, chief investment strategist at Russell Investments, said investors “are at risk of overbought the US bailout theme.
“Despite strong wages, wages are still cooling and putting downward pressure on inflation, and policy uncertainty is high,” he added, citing Trump’s tariffs and deportation plans.
