By Laura Matthews and Samuel Indyk
NEW YORK/LONDON (Reuters) -The U.S. dollar rose on Monday, driving its peers to multi-year lows, after Friday’s blowout U.S. jobs report underscored the strength of the economy and muddied the outlook for further Federal Reserve rate cuts this year.
The dollar index, which measures the U.S. unit against a basket of currencies, was up 0.24% at 109.9. It surged to its highest in more than two years on Monday, peaking at 110.17, extending the recent rally.
Friday’s data showed U.S. job growth unexpectedly accelerated in December and the unemployment rate fell to 4.1%, leaving traders heavily scaling back bets of Federal Reserve rate cuts this year.
Markets were now no longer fully pricing in even one rate cut from the Fed in 2025, down from roughly two quarter-point cuts priced at the start of the year.
With Wednesday’s reading on U.S. inflation up next, any upside surprise could further close the door on future easing. A slew of Fed officials are also due to speak this week.
“Investors are closely monitoring Wednesday’s upcoming inflation data to assess whether it supports the Fed’s recent hawkish tilt on inflation,” said Uto Shinohara, senior investment strategist, at Mesirow Currency Management in Chicago.
Adding to expectations of a less aggressive easing cycle is the view that President-elect Donald Trump’s plans for hefty import tariffs, tax cuts and immigration restrictions could stoke inflation. He returns to the White House in a week.
The euro, which hit its weakest level against the dollar since November 2022 at $1.0177, was down 0.4% at $1.0207. Meanwhile sterling was down 0.37% at $1.2151 after sliding as much as 0.7% to a 14-month low of $1.21.
The pound has been under pressure from concerns over rising borrowing costs and growing unease over Britain’s finances. It tumbled 1.8% last week.
Chris Turner, global head of markets at ING, said the view is that the UK government will probably be forced to announce spending cuts in March, feeding a weaker sterling narrative.
“Elsewhere, there’s just not a lot of great growth stories or great central bank stories. So, it’s just very hard to bet against the dollar right now,” said John Velis, head of FX and macro strategy for the Americas, at BNY Markets.
The Australian dollar, which sank to its weakest since April 2020 at $0.6131, was last trading at 0.615. The New Zealand dollar was at $0.5554, languishing near a more than two-year low.
BEIJING STEPS IN
The yuan bucked the global trend and rose slightly 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 dollar slipped 0.1% against the offshore yuan to 7.3547 per dollar.
Monday’s moves by the People’s Bank of China follow its suspension on Friday of treasury bond purchases, which briefly lifted yields and spurred speculation it is stepping up defence of the yuan.
“The PBOC is doing whatever it takes to maintain RMB stability,” said Christopher Wong, a currency strategist at OCBC.
The Chinese currency has come under renewed pressure in part due to investors’ disappointment over the lack of further stimulus from Beijing to shore up its struggling economy.
The dollar was down 0.27% against the yen at 157.33. The yen’s decline was mitigated by news that Bank of Japan policymakers could raise their inflation forecast at a policy meeting this month as a prelude to hiking rates again.
(Reporting by Laura Matthews in New York and Samuel Indyk; Additional reporting by Rae Wee; Editing by Emelia Sithole-Matarise and Bernadette Baum)
