The Dollar Surges to 11-Week High as Fed Rate Cut Bets Diminish
Dollar Climbs to 3-Month High Against Major Currencies
The dollar reached its highest level in almost three months against nine other major currencies on Monday, as traders significantly reduced their bets that the Federal Reserve would aggressively cut interest rates this year. This change in sentiment followed the release of new economic data that further diminished the likelihood of rate cuts.
U.S. Services Sector Growth Accelerates in January
The Institute for Supply Management (ISM) reported that U.S. services sector growth picked up in January, driven by an increase in new orders and a rebound in employment. According to the ISM, the non-manufacturing PMI rose to 53.4 from 50.5 in December, surpassing economists’ forecast of 52.0. This data suggests that the economic growth momentum from the fourth quarter has spilled over into the new year, indicating growth in the services industry, which drives more than two-thirds of the economy.
Fed Rate Cut Expectations Diminish
Following Friday’s unexpectedly strong U.S. jobs report, the market adjusted its outlook for rate cuts, leading to a surge in the dollar’s strength and Treasury yields. The market’s response suggests that not many central banks and currencies can keep up with the U.S. in terms of the rates adjustment.
Treasury Yields Rise
Treasury yields started to rise after Fed Chair Jerome Powell’s statement over the weekend that the U.S. central bank could “give it some time” before cutting rates. Yields further increased on the news of the ISM survey, contributing to the dollar’s rise against all members of the G10 grouping of currencies.
Global Currency Movement
The dollar’s index, which tracks the greenback against six other major currencies, jumped to 104.60, its highest since Nov. 14, and was last up 0.36% at 104.40. Meanwhile, the euro fell to its lowest since Nov. 14 at $1.0721 and was last down 0.43% at $1.0744. Japan’s yen also fell to its lowest since Nov. 27 at 148.89 per dollar.
Revised Data on Unemployment Rate
The pound showed little reaction to revised data indicating that Britain’s unemployment rate was lower than expected at the end of the year. On the other hand, the slid about 1.4% to 42,355.70 in late trading.