By Laura Matthews and Samuel Indyk
NEW YORK/LONDON (Reuters) -The U.S. dollar rose on Monday, pushing its peers to a multi-year low, after Friday’s U.S. jobs report underlined the strength of the economy and clouded the prospects for further Federal Reserve interest rate cuts this year.
The , which measures the U.S. unit against a basket of currencies, rose 0.24% to 109.9. The price rose to a more than two-year high on Monday, peaking at 110.17, continuing its recent rally.
Friday’s data showed that U.S. job growth unexpectedly accelerated in December and the unemployment rate fell to 4.1%, prompting traders to severely scale back their bets on Federal Reserve rate cuts this year.
Markets were now no longer fully pricing in even one Fed rate cut in 2025, down from roughly two quarter-point cuts at the start of the year.
With US inflation heading higher next, any upside surprise could further close the door to future easing. A slew of Fed officials will also speak this week.
“Investors are closely watching Wednesday’s upcoming inflation data to assess whether it supports the Fed’s recent hawkish stance 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 newly-elected President Donald Trump’s plans for steep import tariffs, tax cuts and immigration restrictions could fuel inflation. He returns to the White House in a week.
The euro, which reached its weakest level against the dollar since November 2022 at $1.0177, fell 0.4% to $1.0207. Meanwhile, the pound fell 0.37% to $1.2151, after falling as much as 0.7% to a 14-month low of $1.21.
The pound is under pressure due to concerns about rising borrowing costs and growing unrest over British finances. Last week the price fell by 1.8%.
Chris Turner, Global Head of Markets at ING, says the UK government will likely be forced to announce cuts in March, fueling a weaker sterling story.
“There just aren’t a lot of great growth stories or great central bank stories elsewhere, so it’s very difficult 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 fell 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 its lowest point in more than two years.
BEIJING STEP 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 foreign borrowing and sending verbal warnings.
The dollar fell 0.1% against the greenback to 7.3547 per dollar.
The People’s Bank of China’s moves on Monday follow Friday’s suspension of government bond purchases, which briefly lifted yields and fueled speculation that the yuan’s defense is being stepped up.
“The PBOC is doing everything it can to maintain RMB stability,” said Christopher Wong, currency strategist at OCBC.
The Chinese currency has come under renewed pressure in part due to investor disappointment over the lack of further stimulus from Beijing to support the struggling economy.
The dollar fell 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 forecasts at a policy meeting this month in a prelude to another rate hike.
