The dollar surged on the first trading day of the year, experiencing its largest daily jump since October as US yields rebounded. The dollar index, which measures the US currency against six major counterparts, rose by 0.67 percent to 102.05. This marked a significant turnaround for the currency, which had fallen by 2 percent in 2020 due to expectations of rate cuts by the US Federal Reserve. Investors are now watching for US jobs data and European inflation numbers this week, which could provide insights into the next moves by central banks.
The euro and the British pound both weakened against the dollar, with the euro dipping 0.74 percent and sterling falling 0.64 percent. Meanwhile, the dollar climbed by 0.96 percent against the Japanese yen. Supporting the dollar’s gains was the rise in US yields, particularly the benchmark 10-year yield, which increased by 10 basis points to 3.963 percent. This represents the largest daily increase in over three weeks.
Market participants have a busy week ahead, with key economic data releases on the horizon. Traders will closely watch European inflation data and US data on job openings and non-farm payrolls, as these figures will shape market expectations regarding monetary policy decisions by the Federal Reserve and the European Central Bank.
In terms of monetary policy, investors are pricing in an 82 percent chance of interest rate cuts by the Fed starting in March, with an anticipated easing of over 150 basis points throughout the year.
Higher oil prices due to geopolitical tensions in the Middle East failed to offset the strength of the dollar, impacting currencies of oil-exporting countries such as the Norwegian crown, the Canadian dollar, and the Australian dollar.
In the cryptocurrency market, bitcoin saw a promising start to the year, reaching a 21-month peak of $45,532. This surge was driven by expectations that the US Securities and Exchange Commission will approve exchange-traded spot bitcoin funds.
As the year begins with a significant uptick for the dollar, market participants will closely monitor economic indicators and central bank decisions to gauge the trajectory of currencies and global markets.
