Key facts
- The U.S. dollar reached a two-month high following a strong U.S. jobs report.
- Nonfarm payrolls increased by 172,000 jobs last month, exceeding estimates.
- Traders are now pricing in a greater than 70% chance of a Fed rate hike in December.
- The euro fell to a two-month low of $1.1507 against the dollar.
- Sterling dropped to a three-week low of $1.33165.
- The yen weakened to 160.29 per dollar, erasing intervention gains.
The U.S. dollar strengthened to a two-month high on Monday, driven by a robust U.S. jobs report that increased the likelihood of a Federal Reserve interest rate hike later this year. The report showed nonfarm payrolls rose by 172,000 in the past month, surpassing market expectations.
This data has led traders to ramp up bets on Fed tightening, with markets now pricing in over a 70% chance of a rate increase in December, a significant jump from the previous week's 45% probability. The strengthening dollar pushed the euro down to a two-month low of $1.1507 and sterling to a three-week trough of $1.33165. The Australian and New Zealand dollars also hit two-month lows.
Jonas Goltermann, chief markets economist at Capital Economics, noted that the strengthening U.S. labor market, despite energy price shocks, makes policy tightening by the Fed more probable. Capital Economics now anticipates two 25-basis-point rate hikes from the FOMC later this year.
The yen faced further pressure, trading at 160.29 per dollar, which has erased the gains made after Japan's intervention last month. David Meier, an economist at Julius Baer, attributed the yen's weakness to a persistent interest rate disadvantage, as the Bank of Japan lags other central banks in normalizing policy. Sources indicate the BOJ might raise rates this month unless the Middle East conflict escalates sharply.
In cryptocurrencies, Bitcoin saw a rebound, rising over 1% to $62,838.60, after a recent dip. Ether also climbed more than 3% to $1,680.87. The article notes that booming AI stocks and upcoming listings like SpaceX have drawn capital away from cryptocurrencies.