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Dollar underpinned by Fed rate outlook
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Sterling at mercy of gilt market
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Beijing steps up defence of yuan
(Updates to U.S. afternoon)
By Laura Matthews
NEW YORK, Jan 13 (Reuters) - The dollar rose on Monday,
driving its peers to multi-year lows, after Friday's blowout U.S. jobs
report underscored economic strength and fueled growing doubts about
the Federal Reserve cutting interest rates this year.
The dollar index, which measures the greenback against a basket of
currencies, rose 0.26% to 109.94. Earlier in the session it surged to
its highest in more than two years, peaking at 110.17 and
extending the recent rally.
U.S. jobs growth unexpectedly accelerated in December and the
unemployment rate fell to 4.1%, leaving traders heavily scaling back
bets of rate cuts this year.
Markets are pricing in a 25 basis point cut from the Fed for
December, after not fully pricing one in for 2025.
With Wednesday's U.S. inflation report up next, any upside
surprise could further close the door on future easing. A slew of Fed
officials are also due to speak this week.
"With markets currently pricing in just over one rate cut by
year-end, the reaction to the inflation print may be relatively
measured," said Uto Shinohara, senior investment strategist at Mesirow
Currency Management in Chicago.
"A more critical inflection point is the Trump inauguration
this month, after which we'll see if Trump's tariff threats are fully
realized or were they a negotiating ploy."
President-elect Donald Trump returns to the White House on Monday.
His plans for hefty import tariffs, tax cuts and immigration
restrictions could stoke inflation, adding to expectations of a less
aggressive easing cycle.
The euro, down 0.4% at $1.0208, earlier in the session
hit its weakest level against the dollar since November 2022. Sterling
was last down 0.24% at $1.2167, after sliding to a 14-month
low earlier in the day.
The pound has been under pressure from concerns over rising
borrowing costs and growing unease over Britain's finances. It tumbled
1.8% last week.
Marc Chandler, chief market strategist at Bannockburn Global Forex
in New York, said the general bullishness toward the dollar stems from
diverging central bank policies and the threat of tariffs.
"The tariff threat seems to be inflationary in the U.S.," he
said, citing the impact it can have on interest rates. "But (it) also
seems that tariffs would further destabilize some of our key trading
partners, including Europe, Canada, Mexico."
After sinking to its weakest since April 2020, the Australian
dollar was up 0.13% at 0.615. The New Zealand dollar
edged up 0.07% to $0.5559, staying near a more than two-year low.
BEIJING STEPS IN
The yuan bucked the global trend and rose slightly on Monday after
Beijing stepped up efforts to defend the weakening currency by
relaxing rules to allow more offshore borrowing and sending verbal
warnings.
The dollar slipped 0.12% against the offshore yuan, which
was trading at 7.3533 per dollar.
On Friday, the People's Bank of China suspended treasury bond
purchases, which briefly lifted yields and spurred speculation it is
stepping up defence of the yuan.
The Chinese currency has come under renewed pressure in part due
to investors' disappointment over the lack of further stimulus from
Beijing to shore up its struggling economy.
The dollar is down 0.03% against the yen at 157.7. The
yen's decline was mitigated by news that Bank of Japan policymakers
could raise their inflation forecast at a policy meeting this month as
a prelude to hiking rates again.
Currency
bid
prices at
13
January?
08:11
p.m. GMT
Descripti RIC Last U.S. Pct YTD Pct High Low
on Close Change Bid Bid
Previous
Session
Dollar 59
Euro/Doll 177
Dollar/Ye 915
Euro/Yen 04
Dollar/Sw 56
Sterling/ 1?
Dollar/Ca 92
Aussie/Do 131
Euro/Swis 38
Euro/Ster 86
NZ 44
llar
Dollar/No 411
Euro/Norw 045
Dollar/Sw 109
Euro/Swed 856
(Reporting by Laura Matthews in New York; Additional reporting by
Samuel Indyk and Rae Wee; Editing by Emelia Sithole-Matarise,
Bernadette Baum and Richard Chang)
Line of Credit 
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