Published 16:28 IST, February 5th 2024

Dollar at two-month high as rate cut hopes recede

The unexpected strength in the US job market prompted market participants to reevaluate the Federal Reserve's stance on the labour market.

Reported by: Business Desk
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Dollar hits three-month low | Image: Unsplash

Dollar surged to a two-month high against major currencies on Monday as traders recalibrated expectations for aggressive rate cuts by the Federal Reserve in the wake of a robust US jobs report last Friday. The report exceeded market forecasts, leading to a surge in US bond yields and strengthening the dollar.

The repricing by the Fed gained momentum after comments from Fed Chair Jerome Powell, who indicated that the central bank might take its time before implementing interest rate cuts. Powell's statements further boosted Treasury yields on Monday.


In early Asia trade, the Japanese yen fell to its lowest level since early December at 148.82 per dollar before stabilizing at 148.43. Meanwhile, the euro was down 0.26 per cent at $1.0762, close to its lowest level since mid-December.

The dollar index rose 0.12 per cent to 104.17, reaching its highest point since December 11. The unexpected strength in the US job market prompted market participants to reevaluate the Federal Reserve's stance on the labour market.


Chris Turner, Global Head of Markets at ING, noted, "Markets continue to be bounced around by data and central bank speak," highlighting the impact of economic indicators and statements from central bank officials.

Charu Chanana, Head of FX Strategy at Saxo Bank, emphasized the growing reasons for a bullish trend in the USD, with markets reevaluating the possibility of a March rate cut after Powell's recent comments.


Fed funds futures now indicate approximately 120 basis points of easing for the Fed in 2024, down from about 150 basis points at the end of the previous year. The likelihood of a March cut has decreased to around 16 per cent, a sharp decline from approximately 50 per cent a week ago.

Sterling edged down 0.17 per cent to $1.2612, reaching a two-week low. The Australian dollar also declined 0.16 per cent to $0.6501, after dipping as low as $0.6487 in Asian trading.


Treasury yields continued to rise, reflecting expectations of higher US rates, with the two-year yield up 8 basis points at 4.445 per cent, following an 18 basis points jump on Friday.

The onshore yuan struggled against the stronger dollar, closing at 7.1982 per dollar, the weakest since November 17, despite China's central bank using official guidance to maintain stability.


The focus later in the day will be on the ISM non-manufacturing survey, providing insights into the health of the US economy in January. Additionally, German export data for December revealed a more significant-than-expected decline due to weak global demand.

(With Reuters inputs)

15:35 IST, February 5th 2024