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 U.S. jobs data late last week dampened traders’ expectations for a Federal Reserve interest rate cut.

The dollar index, which tracks the US currency against the yen, euro and other major currencies, hit its highest level since November 2022, with the pound falling 0.5 percent to $1.216 – a new 14-month low.

Equities in China, India, South Korea and Australia also fell on Monday after Friday’s US payrolls report showed that 256,000 jobs were added in December, blowing past consensus estimates and raising concerns that a stronger economy could slow the pace of Fed rate cuts.

Jason Lui, head of Asia-Pacific equity and derivatives strategy at BNP Paribas, said, “People are surprised by the economic strength of the United States. “With US interest rates so high, you’re going to have a liquidity drain in Asia, capital flowing into the US or staying there.”

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

“Emerging market equities have traditionally performed better when US interest rates are low,” said Sunil Tirumalai, head of Asian equity strategy at UBS. “Fed not cutting and weaker currency means less room to cut Asian rates.”

Hong Kong’s Hang Seng index fell 1.2 percent, while mainland China’s CSI 300 shed 0.5 percent.

“On the shore [Chinese] The market is still more resilient to external noise,” said Lui, who said mainland investors were still shifting funds from low-yield savings accounts to equity markets.

Still, mainland Chinese equities have fallen 17 percent since last year’s Oct. 8 peak, as hopes for bazooka-style stimulus from Beijing fade and concerns over the economic impact of Donald Trump’s second term hit markets.

“Some of the stimulus measures have been a positive surprise,” said Tirumalai, who acknowledged that China is still in a “bear market”. “The expansion of the trade-in scheme to a wider array of consumer goods, for example, came earlier than we thought.”

Oil prices rose to a four-month high after the US announcement New embargo on Russian oil Friday

Brent crude, the international benchmark, rose 1.6 percent to $81 a barrel, while U.S. gauge West Texas Intermediate rose 1.7 percent to $77.90 a barrel.