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The dollar rose to a two-year high against the euro and an eight-month high against sterling on Thursday as strong US jobs data boosted investor confidence in the strength of the world’s largest economy. world.
The pound, which was the best-performing G10 currency against the dollar last year, fell 1.2 percent to $1.2371, its lowest level since late April, while the euro fell 0.9 percent to $1.0261, its lowest. since November 2022.
An index tracking the dollar against a basket of six peers, including sterling and the euro, rose 0.7 percent.
Thursday’s moves reflect growing investor confidence that U.S. economic growth and lingering inflation will limit the pace of interest rate cuts by the Federal Reserve this year, boosting demand for the dollar against other major currencies. .
Data on Thursday showed that new claims for jobless benefits hit an eight-month low last week.
Markets expect the US central bank to cut rates by 0.43 percentage points by the end of 2025. Slower growth forecasts for the UK and the Eurozone mean the Bank of England and the European Central Bank are expected to cut rates by 0.59 percentage points and 1.08 percentage points respectively for the same period.
In stock markets, US stocks gave up early gains to trade lower by midday in New York, with the S&P 500 down 0.6 percent and the Nasdaq Composite down 0.7 percent.
Sterling was being “punished” on Thursday as investors trimmed their long positions in the currency, said Kit Juckes, a currency strategist at Société Générale.
“A big surprise at the end of last year was that there was very little selling of the dollar, when traders typically hedge their positions,” Juckes said.
“Sterling is a currency that many people own, which leaves it a bit vulnerable when the dollar continues to rise, especially in weak trading (conditions),” he added.
Other analysts said weak UK and Eurozone manufacturing data released on Thursday morning and the threat of higher natural gas prices could also weigh on both sterling and the euro.
In the early hours of Wednesday, Russian gas stopped flowing through Ukraine to EU countries after a five-year deal expired, meaning European countries will be forced to import more expensive LNG from elsewhere.
The EU was emptying its gas storage facilities at the fastest pace since the energy crisis three years ago, as colder winter weather boosts demand, according to data from Gas Infrastructure Europe, an industry body.
“Higher gas prices would be negative for the terms of trade for the UK and other euro economies, given that they are big energy importers,” said Lee Hardman, currency strategist at MUFG Bank.
David Oxley, chief climate and commodities economist at Capital Economics, said higher EU natural gas prices would keep pressure on the region’s industrial sector but would not “move the needle on the outlook for inflation and interest rates.” “.
Additional reporting by Harriet Clarfelt in New York
