Dollar Soars as U.S. Economy Stuns, Fed Rate Cuts in Doubt

The U.S. dollar surged to multi-year highs following a robust jobs report. Expectations for Federal Reserve rate cuts have diminished, affecting currency markets. The euro, sterling, and Australian dollar weakened, while China's yuan rose slightly after government interventions. Market focus shifts to upcoming U.S. inflation data.

The U.S. dollar surged on Monday, reaching multi-year highs after Friday's stellar jobs report highlighted the strength of the U.S. economy. The dollar index climbed to 110.17, its highest in over two years, as the outlook for Federal Reserve rate cuts became increasingly uncertain.

Data revealed unexpected U.S. job growth in December, with unemployment dropping to 4.1%, causing traders to rethink the likelihood of Fed rate cuts this year. Markets are now less certain of any rate cuts by 2025, a steep change from initial predictions of two quarter-point cuts earlier this year.

The euro dropped to its weakest against the dollar since November 2022, while sterling hit a 14-month low. Meanwhile, the yuan rose slightly, as Beijing implemented measures to stabilize the currency. The focus now turns to U.S. inflation data and further Fed statements.

(With inputs from agencies.)