Dollar Soars to Two-Year High as US Jobs Report Exceeds Expectations
The US dollar surged to its highest level in over two years on Monday, driven by a stronger-than-expected US jobs report that underscored the resilience of the world’s largest economy. The greenback peaked at 109.98 against a basket of currencies, extending its rally from last week.
Euro and Sterling Plummet to Multi-Year Lows
The euro hit its weakest level since November 2022, falling to $1.0275, while sterling slid more than 0.5% to a 14-month low of $1.2128. The pound has been under pressure due to concerns over rising borrowing costs and growing unease over Britain’s finances, having tumbled 1.8% last week.
US Labour Market Ends Year on Solid Footing
Friday’s data showed US job growth unexpectedly accelerated in December, with the unemployment rate falling to 4.1%. This has led traders to scale back bets on Federal Reserve rate cuts this year, with markets now pricing in just 27 basis points worth of cuts, down from roughly 50 bps at the start of the year.
Fed Officials to Speak This Week
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, adding to expectations of a less aggressive easing cycle.
Trump’s Plans Stoke Inflation Concerns
The view that Donald Trump’s plans for hefty import tariffs, tax cuts, and immigration restrictions could stoke inflation is also supporting an extended pause to easing by the Federal Open Market Committee (FOMC).
Australian and New Zealand Dollars Slump
The Australian dollar sank to its weakest level since April 2020 at $0.6131, while the New Zealand dollar last traded 0.05% lower at $0.55525, languishing near a more than two-year low.
Beijing Steps in to Defend Yuan
The yuan, however, bucked the global trend and rose on Monday, after Beijing stepped up efforts to defend the weakening currency by relaxing rules to allow more offshore borrowing and sending verbal warnings. The onshore unit rose marginally, while gains in the offshore yuan were more pronounced, rising more than 0.15%.
Chinese Exports Gain Momentum
Separate data on Monday showed China’s exports gained momentum in December while imports recovered, though markets hardly reacted to the better-than-expected figures, as worries grow over the outlook for Chinese trade on the back of Trump’s impending return to the White House.
Yen Rises on Bank of Japan Policy Hopes
The yen similarly rose 0.1% to 157.53, as news that Bank of Japan policymakers could raise their inflation forecast at a policy meeting this month as a prelude to hiking rates again mitigated its decline.
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