TODAY’S NEWS

The U.S. dollar climbed sharply on Monday, reaching multi-year highs against other currencies after an unexpectedly strong U.S. jobs report highlighted the resilience of the American economy. This data cast doubt on the likelihood of additional Federal Reserve rate cuts this year.

The dollar index, which measures the greenback against a basket of currencies, rose to a two-year peak of 109.98, continuing its upward momentum from the previous week. While trading in Asia was subdued due to a public holiday in Japan, currency markets were volatile, with many currencies hitting fresh lows due to the dollar’s strength.

The euro fell to $1.0275, its lowest since November 2022, while the British pound slid over 0.5% to a 14-month low of $1.2128. Concerns over rising borrowing costs and Britain’s financial outlook weighed heavily on sterling, which dropped 1.8% last week.

Data from Friday revealed an unexpected acceleration in U.S. job growth in December, with unemployment falling to 4.1%. This robust labor market performance prompted traders to significantly reduce expectations for Fed rate cuts in 2025, with markets now pricing in just 27 basis points of cuts, down from 50 bps earlier this year.

Attention is now focused on Wednesday’s U.S. inflation data, which could influence Fed policy further. Analysts suggest that stronger inflation figures could diminish the chances of rate cuts altogether. Additionally, comments from Federal Reserve officials this week are expected to provide further clarity.

Nick Rees, head of macro research at Monex Europe, emphasized that the U.S. economy’s strength remains a dominant theme, noting that labor market stabilization and inflation risks tied to Donald Trump’s upcoming presidential term could prolong the Fed’s pause on easing.

Trump’s economic policies, including proposed tariffs, tax cuts, and immigration restrictions, are expected to fuel inflationary pressures, further reducing the likelihood of aggressive rate cuts.

Global Currency Movements

The Australian dollar dropped to $0.6131, its lowest since April 2020, while the New Zealand dollar fell to $0.55525, hovering near a two-year low.

China’s yuan diverged from the global trend, rising slightly after the People’s Bank of China (PBOC) implemented measures to stabilize the currency. The central bank relaxed rules on offshore borrowing and issued verbal interventions. These moves followed Friday’s suspension of treasury bond purchases, which briefly lifted yields and signaled PBOC’s commitment to stabilizing the yuan.

The onshore yuan rose marginally to 7.3318 per dollar, while the offshore yuan gained 0.15% to 7.3535. Analysts view these steps as Beijing’s attempt to counter investor concerns about the lack of substantial economic stimulus.

In Japan, the yen edged up 0.1% to 157.53 per dollar, supported by speculation that the Bank of Japan may raise its inflation forecast at an upcoming policy meeting, potentially paving the way for another rate hike.

China’s export and import data for December exceeded expectations, but markets remained cautious about the country’s trade outlook due to concerns over Trump’s economic policies as he prepares to take office again.

The dollar’s dominance and global currency adjustments highlight ongoing economic uncertainties as markets adjust to shifting U.S. monetary policy and geopolitical developments.

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