U.S. dollar surges after strong jobs report

U.S. dollar surges after strong jobs report
U.S. dollar surges after strong jobs report

The global dollar rose, pushing its peers to multi-year lows, after a surprise US jobs report underscored the strength of the economy and clouded prospects for further Federal Reserve rate cuts this year.

The dollar index, which measures the currency against a basket of six rival currencies, rose to its highest level in more than two years to hit a peak of 110.17, extending the recent rally..

Data showed US job growth unexpectedly accelerated in December and the unemployment rate fell to 4.1%, prompting traders to sharply reduce their bets on rate cuts by the Federal Reserve this year.

US inflation is due, so any upside surprises could further close the door on further easing.

“Looking back to last year, there were concerns and signs that cracks were emerging in the labour market, but they seem to have been fully addressed, not just papered over,” said Dominic Bunning, head of G10 currency strategy at Nomura. “The US economy is resilient enough to justify a strong dollar and relatively higher rates,” he added.

Adding to expectations for a less aggressive easing cycle is the view that President-elect Donald Trump’s plans to impose heavy import tariffs, tax cuts and immigration restrictions could stoke inflation. The Republican will return to the White House in a week. The euro hit its weakest level against the dollar since November 2022 at $1.0177, while sterling was one of the biggest losers, falling as much as 0.7% to a 14-month low of $1.21.

Elsewhere, the Australian dollar slumped to its lowest level since April 2020 at $0.6131. ​​The New Zealand dollar was last trading at $0.5544, near a more than two-year low.

Meanwhile, the yuan bucked the global trend and edged up after China stepped up efforts to defend the weakened currency by relaxing rules to allow more overseas borrowing and sending verbal warnings. The offshore yuan rose 0.1% to 7.3576 per dollar.