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The dollar hit a two-year high against major currencies on Monday, with sterling the biggest faller, after strong U.S. jobs data late last week led traders to sharply reduce expectations for further interest rate cuts from the Federal Reserve.
The U.S. dollar index, which tracks the U.S. dollar against the yen, the euro and other major currencies, reached its highest level since November 2022.
Sterling fell a further 0.4% to $1.216, hitting a 14-month low and the worst performance among the G10 currencies, extending a period of subdued trading in UK assets following last week’s sell-off in gilts.
British government bonds weakened in early trading, pushing the 10-year bond yield up 0.06 percentage point to 4.89%, close to last week’s 16-year high. British gilts have been hit hard by a global bond sell-off compounded by worries about the UK economy.
“For a concrete turnaround, we would need to see a commitment to spending cuts on Wednesday or some softening in services sector inflation,” said William Vaughan, bond portfolio manager at Brandywine Global.
Stocks in China, India, South Korea and Australia also fell on Monday after Friday’s U.S. nonfarm payrolls report showed 256,000 new jobs were added in December, beating consensus expectations and raising concerns that a strong economy could slow and the Federal Reserve cut interest rates.
“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 U.S. interest rates so high, liquidity will be lost in Asia and capital will either go to the U.S. or stay there. ”
Australia’s S&P/ASX 200 index fell 1.2% and South Korea’s Kospi index fell 1%. India’s Sensex fell 1.1%. Japanese markets are closed on Monday.
“Traditionally, emerging market equities have performed better when U.S. interest rates are lower,” said Sunil Tirumalai, head of Asia equity strategy at UBS. “The Fed not cutting rates and currency weakness means there is less room for rate cuts in Asia. ”
Hong Kong’s Hang Seng Index fell 1%, and mainland China’s CSI 300 Index fell 0.3%.
Mainland Chinese stocks have fallen steadily in recent months as hopes of Beijing’s bazooka-style stimulus fade and concerns over the economic fallout of a second term for Donald Trump.
“Some of the stimulus measures are surprising,” Tirumalai said, acknowledging that China was still in a “bear market.” “For example, trade-in programs are expanding into a wider range of consumer products sooner than we thought.”
Oil prices rose to four-month highs after the United States announced sweeping new sanctions on Russian oil on Friday. Brent crude, the international benchmark, rose 2.3% to $81.65 a barrel.
