U.S. Dollar Strengthens as Job Growth Shifts Market Focus

Image Credit: Reuters

The U.S. dollar started the week strong on Monday, leaving its counterparts at multi-year lows following a robust U.S. jobs report that highlighted the country's economic strength compared to the rest of the world. 

The euro and the New Zealand dollar hovered near multi-year lows at $1.0242 and $0.5565, respectively, during early Asian trading. With Japan's markets closed for a holiday, the Australian dollar struggled near a four-year low of $0.6139 but edged up by 0.1% to $0.6153.

U.S. job growth accelerated in December, with the unemployment rate dropping to 4.1%, signaling a solid labor market and leading traders to reduce expectations for Federal Reserve rate cuts this year.

Nick Rees, head of macro research at Monex Europe, noted that U.S. economic strength remains a dominant theme for 2025. He emphasized that while the U.S. labor market has stabilized, inflation risks, particularly from the incoming Trump administration's policies, could support a prolonged pause in Fed easing.

Markets now expect just 27 basis points of Fed rate cuts this year, down from about 50 basis points earlier in 2025. There are concerns that Trump's tax cuts, tariffs, and immigration restrictions could drive inflation higher.

The U.S. dollar remained firm at 109.67 against a basket of currencies, close to its strongest level since November 2022. The yen weakened 0.12% to 157.92 against the dollar, though its decline was partially offset by news that the Bank of Japan may raise its inflation forecast and consider hiking rates soon.

The British pound rose slightly by 0.07% to $1.2204, but remained near a 14-month low due to concerns over rising borrowing costs and Britain's financial situation. 

Chris Weston of Pepperstone said that the outlook for the pound appears weak, with any rallies likely to be short-lived. 

The offshore yuan in China was little changed at 7.3605 per dollar. The People's Bank of China halted treasury bond purchases on Friday, which briefly raised yields and sparked speculation that it is trying to protect the currency.

 

 

 

 

 

 

 

Paraphrasing text from "Reuters" all rights reserved by the original author.