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Dollar rise puts pressure on peers as other Fed cuts in question By Reuters


Published by Rae Wee

SINGAPORE (Reuters) – The dollar charged higher on Monday and pushed its peers to multi-year lows after a U.S. jobs report underscored the strength of the world's largest economy and undermining the outlook for further Federal Reserve rate cuts this year.

The greenback rose to its highest level in more than two years on Monday against a basket of currencies to peak at 109.98, extending a rally from last week.

Trading was tight in the Asian session with Japanese markets closed for a holiday, but movements in the foreign exchange market were nevertheless volatile and other currencies were showing new highs on the back of the dollar's strength.

The euro hit its weakest level since November 2022 at $1.0275, while sterling was one of the biggest losers as it slipped more than 0.5% to a 14-month low of $1.2128.

The pound has been pressured by concerns at home about rising borrowing costs and growing discontent over Britain's finances. It fell 1.8% last week.

Data on Friday showed that US job growth accelerated unexpectedly in December while the unemployment rate fell to 4.1% as the labor market ended the year on a strong footing, leaving traders to major scaling back of Federal Reserve rate cuts this year.

Markets are now pricing in just 27 basis points of Fed rate cuts this year, down from about 50 bps at the start of the year.

With Wednesday's reading on US inflation next, an upside surprise could threaten to close the door on easing altogether. Several Féed officials are expected to speak this week as well.

“This latest data collection confirms that US economic independence remains a key market theme heading into 2025,” said Nick Rees, head of macro research at Monex Europe, of the nonfarm payrolls report.

“The U.S. labor market has stabilized but is not continuing to unwind, and coupled with the upside risks to inflation emanating from the new (Donald) Trump administration … supports an extended shutdown to easing by the FOMC.”

Adding to expectations of a less aggressive easing cycle is the idea that Trump's plans for large import tariffs, tax cuts and immigration restrictions could curb inflation. He returns to the White House in a week.

Elsewhere, the Australian dollar fell to its weakest level since April 2020 at $0.6131. The New Zealand dollar last traded 0.05% lower at $0.55525, weakening near a two-year low.

BEIJING STEPS IN

Meanwhile, the yuan bucked the global trend and rose on Monday, after Beijing stepped up efforts to protect the weak currency by relaxing rules to allow more offshore borrowing. and sending verbal warnings.

The onshore unit rose slightly on the announcements and was last at 7.3318 per dollar, although it was still weakening near a 16-month low.

Gains in the increase were more pronounced as it rose more than 0.15%. The highest value of the NH share was 7.3535 US dollars.

Monday's moves by the People's Bank of China (PBOC) follow Friday's move, where the central bank halted bond purchases, raising short yields and fueling speculation that it is strengthening the defense of the yuan.

“It appears to be a follow-up from last week's move to temporarily halt bond purchases along with a stronger stance,” said Christopher Wong, currency strategist at OCBC.

“The PBOC is doing whatever it takes to maintain RMB stability. “

China's currency has come under renewed pressure partly due to investor disappointment over the lack of further stimulus from Beijing to bolster the struggling economy.

© Reuters. FILE PHOTO: A currency exchange dealer holds US dollar banknotes at his shop in Beirut, Lebanon December 21, 2022. REUTERS/Mohamed Azakir/File Photo

Separate data on Monday showed that China's exports gained momentum in December while imports recovered, although markets barely reacted to the better-than-expected figures, as concerns that ' growth about the outlook for Chinese trade as a result of Trump's return to the White House.

Elsewhere, the yen also rose 0.1% to 157.53. The yen's decline was eased by news that Bank of Japan policymakers may raise their inflation forecast at a policy meeting this month as a prelude to hiking rates again.





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