The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, surged to 109.98 during the Asian hours on Monday, reaching its highest level since November 2022. The Greenback’s strength was bolstered by robust US labor market data for December, which is expected to reinforce the Federal Reserve’s (Fed) decision to keep interest rates steady in January.
Friday’s strong US jobs report triggered a significant rise in US Treasury yields, with the 2-year and 10-year yields climbing to 4.38% and 4.76%, respectively, at the time of writing. These elevated yields are providing additional support for the USD.
The US Bureau of Labor Statistics (BLS) reported that Nonfarm Payrolls (NFP) increased by 256,000 in December, far surpassing the market’s expectation of 160,000 and the revised November figure of 212,000 (previously 227,000). Additionally, the US Unemployment Rate dropped to 4.1% in December, down from 4.2% in November. However, annual wage inflation, as measured by Average Hourly Earnings, eased slightly to 3.9% from 4% in the previous month.
The latest Federal Open Market Committee (FOMC) Meeting Minutes revealed that policymakers expect the process of rate adjustments to take longer than initially anticipated, following stronger-than-expected inflation data and potential changes in trade and immigration policies under President-elect Trump’s administration.
In an interview with the Wall Street Journal, St. Louis Fed President Alberto Musalem stressed the need for caution in reducing interest rates, citing the growing risk that inflation could become stuck between 2.5% and 3%. Meanwhile, Federal Reserve Board of Governors member Michelle Bowman also echoed concerns about market reactions to the Fed’s anticipated slower pace of rate cuts in 2025, a shift that has caught many market participants off guard.
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