Dollar hits three-month high as Fed rate cut bets diminish

by Jonathan Adams
Dollar gains

The dollar index climbed to 104.60, its highest since November 14, and was last up 0.36% at 104.40

The dollar jumped to its highest in nearly three months against nine other major currencies on Monday as traders slashed bets the Federal Reserve would aggressively cut interest rates this year after new economic data further reduced those odds.

U.S. services sector growth picked up in January as new orders rose and employment rebounded, the ISM said, suggesting economic growth momentum from the fourth quarter spilled over into the new year.

ISM’s non-manufacturing PMI rose to 53.4 from 50.5 in December. A reading above 50 indicates growth in the services industry, which drives more than two-thirds of the economy.

The data added to Friday’s strong U.S. jobs report that far exceeded expectations and forced the market to readjust its outlook for rate cuts, the dollar’s strength and how high Treasury yields, which act to strengthen the U.S. currency, can go.

The question is, who can keep up with the U.S. in terms of the rates adjustment?, according to Steven Englander, head of global G10 FX research and North America macro strategy at Standard Chartered Bank. The market’s answer so far is not too many central banks and not too many of their currencies.

Treasury yields started to rise early on Monday after Federal Reserve Chairman Jerome Powell said over the weekend that the U.S. central bank could “give it some time” before reducing rates. Yields increased further on news of the ISM survey.

The dollar rose against the G10 currencies that are among the most liquid in the world.

The dollar index, which tracks the greenback against six other major currencies, climbed to 104.60, its highest since November 14, and was last up 0.36% at 104.40.

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