Dollar hits 2-year high after robust US data curbs interest rate cut bets
Stay up to date with free updates
Simply log in Currencies myFT Digest – delivered straight to your inbox.
The dollar hit a two-year high against major currencies on Monday after strong U.S. jobs data late last week led traders to scale back their expectations of further rate cuts by the Federal Reserve.
The dollar index, which tracks the U.S. currency against the yen, euro and other major currencies, hit its highest level since November 2022, with the pound falling 0.5 percent to $1,216 – a new 14-month -Deep.
Stocks in China, India, South Korea and Australia also fell on Monday after Friday’s U.S. jobs report showed 256,000 new jobs were added in December, beating consensus estimates and raising concerns that a strong economy will slow the Fed’s pace of interest rate cuts could slow down.
“People are surprised by the strength of the U.S. economy,” said Jason Lui, head of Asia-Pacific equity and derivatives strategy at BNP Paribas. “With US interest rates so high, there will be an outflow of liquidity in Asia and capital will flow to the US or stay there.”
Australia’s S&P/ASX 200 index fell 1.2 percent, while South Korea’s Kospi fell 1.1 percent. India’s Sensex fell 0.8 percent. Japanese markets were closed on Monday.
“Emerging market stocks traditionally perform better when U.S. interest rates are lower,” said Sunil Tirumalai, head of Asian equity strategy at UBS. “If the Fed doesn’t cut rates and weak currencies mean there is less scope for rate cuts in Asia.”
The Hang Seng Index in Hong Kong fell 1.2 percent, while the CSI 300 in mainland China fell 0.5 percent.
“The (Chinese) onshore market is still more resilient compared to external disruptions,” said Lui, who said mainland investors were still shifting funds from low-interest savings accounts to the stock market.
Nonetheless, stocks in mainland China have fallen steadily by 17 percent since peaking on October 8 last year as hopes for a bazooka-style stimulus from Beijing faded and worries about the economic impact of Donald Trump’s second term on the market came.
“Some stimulus measures have been a positive surprise,” said Tirumalai, who acknowledged that China is still in a “bear market.” “The expansion of the trade-in system to a wider range of consumer goods, for example, came sooner than we thought.”
Oil prices rose to a four-month high following the US announcement comprehensive new sanctions against Russian oil on Friday.
Prices for Brent crude, the international benchmark, rose 1.6 percent to $81 a barrel, while U.S. West Texas Intermediate rose 1.7 percent to $77.90 a barrel.
