Dollar Surges: Rate Cut Bets Fade, Euro and Yen Falter

London: 5 February 2024 (TraderMade): The US dollar flexed its muscles on Monday, reaching an 11-week high against major currencies. This surge reflected a shift in market sentiment, with traders scaling back aggressive rate cut expectations for the Federal Reserve this year.

Key Takeaways

• Robust US jobs report and Powell's cautious stance on rate cuts fueled dollar strength.
• Euro, yen, and sterling fell victim to the stronger dollar and revised expectations.
• Market bets for aggressive Fed rate cuts significantly receded.

Key Currencies Bear the Brunt

The Euro (EUR) slumped to its lowest level since December 2023 as concerns about a weak eurozone economy overshadowed positive employment data. The EURUSD pair declined 0.43% to 1.07422.

The Yen (JPY) mirrored the euro's woes, depreciating to its lowest point since early December due to the stronger dollar. The USDJPY pair slightly gained by 0.08% to 148.505.

Sterling (GBP) also succumbed to the dollar's dominance, trading at its lowest since 13 December. The GBPUSD pair surged 0.6% to 1.25584.

_{Please note that the rates are taken at about 02:22 PM GMT - compared to respective closes on Friday, 2 February 2024.}

Better Jobs, Higher Yields Fuel Dollar Rally

Friday's stellar US jobs report shattered expectations, sending shockwaves through markets. Similarly, Powell's cautious stance on rate cuts propelled Treasury yields northward.

The dollar index, a gauge of the greenback's strength, surged to its highest level since November, buoyed by rising yields and a firmer Fed policy outlook.

Rate Cut Bets Take a Hit

The Fed's hawkish message and excellent economic data significantly impacted market expectations. The possibility of a March rate cut plummeted from 50% to just 16%, reflecting a revised outlook on the Fed's policy trajectory.

Summary

The global currency market witnessed a significant shift as the US dollar climbed to an 11-week high. This rally was fueled by better US economic data, cautious Fed commentary, and fading expectations for aggressive rate cuts.

Investors remain focused on upcoming economic releases and central bank pronouncements to assess the future path of currencies and monetary policy.