The dollar hit a two-year high against major currencies on Monday, with the pound the biggest faller, after powerful US jobs data late last week led traders to slash expectations for further profit rate cuts by the Federal safety net.
The dollar index, which tracks the US liquid assets against the yen, euro and other major currencies, reached its highest level since November 2022.
The US payrolls update on Friday showed 256,000 jobs were added in December, blowing history consensus estimates and casting “further doubts on the require for the Fed to keep lowering rates this year”, said MUFG elder liquid assets strategist Lee Hardman.
Swaps markets now expect just one quarter-point cut this year, with some analysts even predicting that the easing pattern is over.
US stocks, which sold off on Friday after the data release, were poised to fall again at the Wall Street open, with S&P 500 index forward contracts down 0.9 per cent and those for the tech-concentrated Nasdaq 100 down 1.3 per cent.
The pound fell a further 0.8 per cent to $1.211, a 14-month low, faring the worst among G10 currencies and continuing a bruising period of market activity for UK assets after last week’s gilt sell-off.
UK national securities weakened in early market activity, pushing the 10-year profit up 0.05 percentage points to 4.89 per cent, approaching last week’s 16-year high. Gilts have suffered as a global predictable returns sell-off mixes with concerns about the UK’s economy.
“For a concrete turnaround, we will require to view either a commitment to reduce spending or a softening in services worth rise on Wednesday,” said William Vaughan, a predictable returns stake apportionment collection manager at Brandywine Global.
Asia-Pacific equities also declined on Monday. “People are surprised by the economic strength in the US,” said Jason Lui, head of Asia-Pacific ownership and derivative schedule at BNP Paribas. “With US profit rates so high you will have a liquid assets flow drain in Asia, with pool flowing to the US or staying there.”
Australia’s S&P/ASX 200 index fell 1.2 per cent, while South Korea’s Kospi declined 1 per cent. India’s Sensex fell 1.3 per cent. Japanese markets were closed on Monday.
“Emerging economy equities traditionally perform better when US profit rates are lower,” said Sunil Tirumalai, head of Asian ownership schedule at UBS. “The Fed not cutting and frail currencies means less room for Asian rate cuts.”
Hong Kong’s Hang Seng index declined 1 per cent, while mainland China’s CSI 300 weakened 0.3 per cent.
Mainland Chinese equities have steadily declined in recent months as hopes for a bazooka-style stimulus from Beijing fade and concerns over the economic impact of Donald Trump’s second term hit the economy.
“Some stimulus measures have been a positive shock,” said Tirumalai, who acknowledged China was still in a “bear economy”. “The extension of the trade-in scheme to a wider array of customer goods for example came earlier than we thought.”
Oil prices rose to a four-month high after the US announced sweeping recent sanctions on Russian oil on Friday. Prices for Brent crude, the international point of reference, climbed 2.3 per cent to $81.65 a barrel.
