The dollar strengthened to its highest level in nearly three months against other major currencies on Monday as traders pulled back forecasts for aggressive rate cuts by the Federal Reserve this year.
The Fed's reassessment follows Friday's US jobs report that beat market expectations and sent US bond yields soaring, boosting the country's currency. US bond yields rose further on Monday after Fed Chairman Jerome Powell said over the weekend that the central bank could "give it some time" before cutting interest rates.
The US dollar index, which tracks the US dollar against six other major currencies, rose to 104.3, its highest since Nov. 17. The US dollar eventually strengthened 0.21% to 104.27. The balance of two-year bond yields ended up 6 basis points to 4.433%, after jumping 18 basis points on Friday.
The euro fell to its lowest level since December 11 at $1.0747 and eventually fell 0.36% to $1.0752. In a recent interview, Powell said the Fed could wait to decide when to cut the benchmark interest rate.
The Japanese yen fell to its lowest level since early December in early Asian trade at 148.82 US dollars, before steadying at 148.36. Jane Foley, chief FX strategist at Rabobank, said a weak European zone economy may also have an impact on the Euro currency. Data on Monday showed German exports fell more than expected in December due to weak global demand. A rate cut in March is now seen as about 16% likely, down significantly from about 50% a week ago. On the other hand, Sterling slipped 0.46% to $1.2576, its lowest since December 13, as the dollar strengthened.
The pound showed a less-than-impressed reaction to esteemed data that showed Britain's unemployment rate was lower than expected at the end of the year. Elsewhere, China's central bank continued to use official guidance to maintain its currency's stability, after setting an intermediate rate for the yuan stronger than Reuters had estimated.
The main event on the economic calendar is the ISM non-manufacturing survey this evening, which will provide a snapshot of the health of the US economy in January.
