The U.S. dollar surged on Monday, hitting multi-year highs against several currencies, fueled by Friday’s robust jobs report that highlighted the resilience of the U.S. economy and increased skepticism over the likelihood of Federal Reserve interest rate cuts this year.
The Dollar Index, which tracks the greenback against a basket of major currencies, climbed 0.26% to 109.94, after briefly reaching a peak of 110.17—its highest level in over two years—continuing its recent upward momentum.
The unexpectedly strong U.S. jobs growth in December, coupled with a drop in the unemployment rate to 4.1%, led traders to sharply reduce their expectations for rate cuts in the near term. Market participants are now pricing in a modest 25 basis point rate reduction from the Federal Reserve by December, a shift from earlier projections which had not fully anticipated a cut until 2025.
With the U.S. inflation report scheduled for release on Wednesday, any upside surprise in inflation data could further diminish the chances of rate cuts. Additionally, a number of Federal Reserve officials are scheduled to speak this week, which could provide further clarity on the central bank’s policy trajectory.
“While the market is pricing in just over one rate cut by year-end, the reaction to the inflation print may be subdued,” said Uto Shinohara, Senior Investment Strategist at Mesirow Currency Management in Chicago. “A more critical inflection point will come after President Trump’s inauguration this month, when we will see if his tariff threats materialize or are just part of a negotiation strategy.”
With President-elect Donald Trump returning to the White House, his proposed policies—including hefty import tariffs, tax cuts, and immigration restrictions—could drive inflation higher, which might temper expectations of aggressive easing from the Fed in the near future.
The euro fell 0.4% to $1.0208, touching its lowest point against the dollar since November 2022, while the British pound dropped 0.24% to $1.2167 after hitting a 14-month low earlier in the session. The pound’s decline reflects growing concerns over rising borrowing costs and increasing anxiety about the UK’s fiscal stability. The currency had plunged 1.8% the previous week.
Marc Chandler, Chief Market Strategist at Bannockburn Global Forex in New York, attributed the dollar’s strength to diverging central bank policies and the potential economic fallout from Trump’s tariff proposals. “Tariffs could be inflationary for the U.S.,” Chandler explained, “but they would also likely destabilize key trading partners, including Europe, Canada, and Mexico.”
Meanwhile, the Australian dollar, which had slumped to its lowest point since April 2020, rose 0.13% to 0.615, while the New Zealand dollar inched up 0.07% to $0.5559, staying near its lowest level in over two years.
Beijing Intervenes to Support Yuan
In a rare countertrend move, the Chinese yuan saw a slight gain on Monday as Beijing took action to stabilize the weakening currency. The People’s Bank of China (PBoC) relaxed certain regulations to allow more offshore borrowing and issued verbal warnings to curb further depreciation.
The dollar slipped 0.12% against the offshore yuan, trading at 7.3533 per dollar. The yuan had come under significant pressure recently, partly due to investor disappointment over China’s limited stimulus measures to support its ailing economy. On Friday, the PBoC suspended its purchases of treasury bonds, briefly lifting yields and sparking speculation that China may be stepping up efforts to defend its currency.
In Japan, the dollar dipped 0.03% against the yen, reaching 157.7 yen. However, the yen’s decline was moderated by reports suggesting that Bank of Japan officials may raise their inflation forecasts at their upcoming policy meeting, potentially signaling another interest rate hike in the near future.
Related topics:
Australian Dollar Slumps as Rate Cut Expectations Weigh Heavy
GBP/USD Struggles Below 1.2400 Amid Bearish Pressure
Indian Rupee Faces Pressure Amid Strong USD and Slowing Economic Growth
