The strength of the dollar deepens losses in other currencies

The dollar rose strongly today, pushing major currencies to their lowest level in years after a US jobs report confirmed the strength of the world’s largest economy and confounded expectations of the Federal Reserve (US central bank) reducing interest rates this year.

The dollar index rose to its highest level in more than two years today, against a basket of six currencies, reaching a peak at 109.98, continuing gains recorded since last week.

Trading was limited in the Asian session with Japanese markets closed for a holiday, but exchange market movements were characterized by volatility and other currencies recorded new lows under pressure from the strength of the dollar.

The euro recorded its lowest level since November 2022 at $1.0275, and the British pound witnessed a decline that made it one of the biggest losers today, as it fell by more than 0.5% to the lowest level in 14 months at $1.2128.

The pound sterling is under pressure due to concerns in Britain about high borrowing costs and growing concerns about the country’s financial conditions. Last week, losses amounted to 1.8%.

Data on Friday showed that the pace of job growth accelerated more than expected in the United States last month and the unemployment rate fell to 4.1%, with the labor market ending last year on a solid basis, prompting traders to significantly reduce bets on the US Central Bank reducing interest rates.

Markets now expect interest rates to be cut by just 27 basis points this year, down from about 50 basis points at the start of the year.

Markets are awaiting inflation data in the United States, which will be released on Wednesday, and any sudden positive reading may indicate a complete cancellation of plans to cut interest rates. A number of Federal Reserve officials are also scheduled to make statements this week.

“This latest data confirms that economic exceptionalism in the United States remains a major theme for the market at the beginning of 2025,” said Nick Rees, senior foreign exchange market analyst at Monex Europe.

He added, “The labor market in the United States has stabilized, but it does not show signs of decline, and with the high risks of inflation under the new (Donald) Trump administration… this will reinforce the trend of a prolonged suspension of monetary easing from the Federal Open Market Committee.”

The Australian dollar fell to its lowest level since April 2020, to $0.6131.

The New Zealand dollar fell 0.05% to 0.55525 US dollars, remaining near the lowest level in more than two years.

The yuan bucked the prevailing global trend to rise today, after Beijing intensified efforts to defend the currency by relaxing rules allowing more external borrowing.

The currency recorded a slight increase in local trading and reached 7.3318 against the dollar in the latest transactions, but it is still near the lowest level in 16 months.

The yuan’s gains were greater in foreign trading, as it rose by more than 0.15% and recorded in the latest trading 7.3535 against the dollar.

In Japan, the yen rose 0.1% to 157.53, and what prevented its decline was news that policymakers at the Bank of Japan may raise their inflation expectations at the monetary policy meeting this month, which may indicate a new hike in interest rates.