Dollar rises to 2-year high after strong data dims rate-cut prospects

The dollar hit fresh highs against several currencies.
The dollar hit fresh highs against several currencies.

Summary

The dollar hit fresh highs against several currencies, continuing its rise after Friday’s strong U.S. jobs data further dimmed prospects for Federal Reserve interest-rate cuts this year.

The dollar hit fresh highs against several currencies, continuing its rise after Friday’s strong U.S. jobs data further dimmed prospects for Federal Reserve interest-rate cuts this year.

Early Monday in Europe, the dollar hit a two-year high of $1.0208 against the euro and $1.2123 against the British pound, according to FactSet. The DXY dollar index, which tracks the currency’s value against a basket of currencies, reached a two-year peak of 109.977.

Regional Asian currencies came under significant pressure too. The Indian rupee printed yet another record low earlier in the session, raising concern that significant depreciation could stoke inflation. Continued weakness in the yuan saw Chinese officials pledge to defend the currency as prospects of U.S. trade tariffs raise concerns.

U.S. money markets are now pricing in only one interest-rate cut in 2025, and this isn’t priced in until September or October.

“The big question for the market now is whether the Fed really needs to cut at all this year," ING’s global head of markets Chris Turner said in a note.

Ebbing prospects of rate cuts in the U.S. contrast with other major economies such as the eurozone and U.K. that are faltering, which is also fuel for the dollar.

The U.S. currency has been on an upward trajectory since Donald Trump’s victory in the U.S. election. Trump’s policies, including tariffs and tax cuts, are expected to fuel inflation, which could further limit rate-cut prospects.

The dollar’s strength and rising U.S. bond yields are “pressure-testing the financial system," ING’s Turner said, with U.K. bond yields hitting multi-year highs and the Chinese yuan close to 16-month lows against the dollar.

Write to Jessica Fleetham at jessica.fleetham@wsj.com

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