Rising dollar pressures peers as further Fed rate cuts questioned

NEW YORK: The US dollar rose on Monday, driving its peers to multi-year lows, after Friday’s blowout US 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 US 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 US 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 US 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.