Harry Robertson and Ray V
LONDON/SINGAPORE (Reuters) – The dollar rose to its highest level in nearly three months against other major currencies on Monday as traders abandoned bets on the Federal Reserve aggressively cutting rates this year.
The Fed’s revaluation follows Friday’s blockbuster US jobs report, which far exceeded market expectations and sent US bond yields soaring, sending the country’s currency higher.
Treasury yields continued to rise on Monday after Fed Chairman Jerome Powell said over the weekend that the central bank could “give some time” before cutting interest rates.
The index, which tracks the dollar against six other major currencies, rose to 104.3, its highest level since November 17. It was last up 0.21% at 104.27.
The two-year Treasury yield was last up 6 basis points at 4.433% after jumping 18 bps. on Friday.
The euro fell to its lowest since Dec. 11 at $1.0747 and was last down 0.36% at $1.0752.
In an interview with the CBS news show “60 Minutes” that aired Sunday night and was conducted Thursday, Powell said the Fed could be patient in deciding when to cut its benchmark interest rate.
“The smart thing to do… is just to give it some time and make sure the data supports a sustained decline in inflation to 2%,” Powell said.
Charu Chanana, head of currency strategy at Saxo Bank, said: “The reasons for the dollar bullish trend continue to multiply… and markets are now having to seriously reassess Powell’s resistance to the March rate cut.”
The Japanese yen fell to its lowest level since early December at 148.82 per dollar in early Asian trade before steadying at 148.36.
Jane Foley, head of foreign exchange strategy at Rabobank, said the weak euro zone economy was also likely to weigh on the euro.
“Germany is stagnating,” she said. “I think we are entering a period where it will be very difficult for the euro to achieve significant growth.”
Data on Monday showed Germany’s exports fell more than expected in December due to weak global demand.
EXPECTATIONS OF RATE REDUCTION
Fed funds futures now show about 120 basis points (bps) of easing priced in for the Fed this year, down from about 150 bps. at the end of last year.
A March contraction is now seen as about a 16% chance, down sharply from about 50% a week ago.
Sterling fell 0.46% to $1.2576, its weakest since Dec. 13, as the dollar rose.
The pound showed little reaction to revised data showing Britain’s unemployment rate was lower than expected at the end of the year.
Elsewhere, China’s central bank continued to use official guidance to keep its currency stable after setting the yuan’s average rate firmer than the Reuters estimate.
This provided some support for the pair, although it still struggled against the stronger dollar and ended the domestic session at 7.1982, its weakest close since November 17.
The main event on the economic calendar is the ISM non-manufacturing survey, due later in the day, which will provide insight into the health of the US economy in January.