By Jessica Fleetham


The dollar hit fresh highs against several currencies and U.S. 10-year borrowing costs increased in tandem, continuing their rise since Friday's strong U.S. jobs data put a dampener on prospects of Federal Reserve interest-rate cuts this year.

Early Monday in Europe, the dollar hit a two-year high of $1.0179 against the euro and $1.2102 against the British pound, according to FactSet. The DXY dollar index, which tracks the currency's value against a basket of currencies, reached a two-year peak of 110.176.

Yields on U.S. 10-year government bonds rose to their highest since November 2023 at 4.788%, Tradeweb data showed.

Regional Asian currencies came under significant pressure too. The Indian rupee printed yet another record low earlier in the session, raising concern that significant depreciation could stoke inflation. Continued weakness in the yuan saw Chinese officials pledge to defend the currency as prospects of U.S. trade tariffs raise concerns.

U.S. money markets are now pricing in only one interest-rate cut in 2025, and this isn't priced in until September or October.

"The big question for the market now is whether the Fed really needs to cut at all this year," ING's global head of markets Chris Turner said in a note.

Ebbing prospects of rate cuts in the U.S. contrast with other major economies such as the eurozone and U.K. that are faltering, which is also fuel for the dollar.

The U.S. currency has been on an upward trajectory since Donald Trump's victory in the U.S. election. Trump's policies, including tariffs and tax cuts, are expected to fuel inflation, which could further limit rate-cut prospects.

The dollar's strength and rising U.S. bond yields are "pressure-testing the financial system," ING's Turner said, with U.K. bond yields hitting multi-year highs and the Chinese yuan close to 16-month lows against the dollar.

The dollar could continue rising to the point where forecasts for the euro falling below parity by mid-year become widespread, Societe Generale currency strategist Kit Juckes said in a note.

Global equity markets were also on the back foot Monday as inflationary pressures, including higher oil prices, rippled through major stock indexes. Tech-heavy E-mini Nasdaq 100 futures were down more than 1.3% by midday in Europe, leading losses across major U.S. indexes, while the E-mini S&P 500 was down 0.9%. Stock markets across Asia fell, with India's Sensex closing down 1.4% and the Hang Seng off 1%. In Europe the Euro Stoxx 50 index of leading blue chips was recently down 0.9%.


Write to Jessica Fleetham at jessica.fleetham@wsj.com


(END) Dow Jones Newswires

01-13-25 0729ET