Dollar hits 2-year high after robust US data puts brake on rate cut bets

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The dollar hit a two-year high against major currencies on Monday after strong US jobs data late last week led traders to lower their expectations for further interest rate cuts by the Federal Reserve.

The dollar index, which tracks the US currency against the yen, euro and other major currencies, hit its highest level since November 2022, with sterling falling 0.5 per cent to $1,216 – a new 14-month low.

Stocks in China, India, South Korea and Australia also fell on Monday after the US jobs report on Friday showed 256,000 jobs added in December, missing previous estimates and raising concerns that the strong economy may slow the pace of interest rate cuts by the Federal Reserve.

“People are amazed at the economic strength in the US,” said Jason Lowe, head of Asia-Pacific equity and derivatives strategy at BNP Paribas. “With US interest rates that high, there will be a drain on liquidity in Asia, with capital flowing into the US or staying there.”

Australia’s S&P/ASX 200 index fell 1.2 per cent, while South Korea’s Kospi fell 1.1 per cent. India’s Sensex fell 0.8 percent. Japanese markets were closed on Monday.

“Emerging market stocks typically perform better when US interest rates are lower,” said Sunil Tirumalai, head of Asian equity strategy at UBS. “The Fed not cutting interest rates and weaker currencies mean less room to cut Asian rates.”

The Hang Seng Index in Hong Kong fell 1.2 percent, while the CSI 300 Index in mainland China fell 0.5 percent.

“Righteousness [Chinese] “The market is still more resilient compared to external noise,” said Lowe, who said mainland investors were still shifting money from low-yield savings accounts into the stock market.

However, stocks in mainland China have fallen steadily by 17 percent since their peak on October 8 last year, as hopes for a bazooka-style stimulus from Beijing faded and concerns about the economic impact of Donald Trump’s second term hit the market.

“Some of the stimulus measures were a positive surprise,” Tirumalai said, acknowledging that China was still in a “bear market.” “The expansion of the trading system to include a wider range of consumer goods, for example, came earlier than we thought.”

Oil prices rose to their highest level in four months after the United States announced broad new sanctions on Russian oil on Friday.

Brent crude prices, the international benchmark, rose by 1.6 percent to $81 per barrel, while US benchmark West Texas Intermediate crude rose by 1.7 percent to $77.90 per barrel.