Dollar Rises to 11-Week High as Fed Rate Cut Bets Recede
Dollar Hits Highest in Almost Three Months
The dollar surged to its highest level in nearly three months against other major currencies on Monday as traders scaled back their expectations for aggressive rate cuts by the Federal Reserve this year.
Market Reaction to U.S. Jobs Report
The Fed repricing came after a robust U.S. jobs report last Friday, which surpassed market expectations and led to a significant increase in U.S. bond yields, consequently boosting the country’s currency.
Fed Chair’s Comments
Treasury yields continued to rise after Fed Chair Jerome Powell stated over the weekend that the central bank might take some time before implementing interest rate cuts.
Impact on Major Currencies
The dollar index, which measures the greenback against six other major currencies, climbed to 104.3, its highest level since November 17. It was last up 0.21% at 104.27. Meanwhile, the euro fell to its lowest since December 11 at $1.0747 and was last down 0.36% at $1.0752.
Global Economic Factors
Reasons for a bullish USD trend continue to increase, with markets needing to reassess Powell’s resistance to March rate cut pricing. Additionally, a weak euro zone economy and falling German exports have also contributed to the dollar’s strength.
Changes in Rate Cut Expectations
Fed funds futures now show approximately 120 basis points worth of easing priced in for the Fed this year, down from about 150 bps at the end of last year. The possibility of a March cut is now seen at roughly 16%, a significant decrease from around 50% a week ago.
Global Currency Movements
Other major currencies also felt the impact, with the yen falling to its lowest level since early December. Sterling was down to $1.2576, its lowest since December 13, while China’s yuan struggled against the stronger dollar, finishing the domestic session at 7.1982, the weakest close since November 17.
Economic Calendar and Future Projections
The main event on the economic calendar is the ISM non-manufacturing survey, which will provide insights into the health of the U.S. economy in January.
