The US dollar surged to a two-year high against the euro and an eight-month high against the British pound, driven by robust jobs data that boosted investor confidence in the strength of the US economy. The greenback’s rally underscores the dollar’s dominance amid global economic uncertainties, particularly in the UK and eurozone.
Dollar Strengthened by Resilient US Jobs Data
On Thursday, data revealed that new unemployment claims in the United States fell to an eight-month low, signaling continued strength in the labor market. This reinforced investor sentiment that the US economy remains resilient despite global challenges.
As a result, the US dollar gained significant ground:
The pound dropped 1.3% to $1.2354, its lowest since late April.
The euro fell 0.9% to $1.0267, reaching levels last seen in November 2022.
By Friday morning in Asia, the pound slightly recovered to $1.2390, and the euro edged up to $1.0271. Meanwhile, the US dollar index, which measures the greenback against six major currencies, was on track for a weekly gain of 1.1%, marking its strongest performance in over a month.
Federal Reserve Policies Bolster Dollar Demand
The Federal Reserve’s cautious approach to cutting interest rates is bolstering demand for the dollar. Markets expect the Fed to lower rates by 0.43 percentage points by the end of 2025, a slower pace compared to the expected cuts from the Bank of England (0.59 percentage points) and the European Central Bank (1.08 percentage points).
The disparity in economic outlooks further strengthens the dollar’s position relative to the euro and sterling.
Weak UK and Eurozone Economies Pressure Sterling and Euro
Sterling faced additional pressure from weak manufacturing data in the UK and eurozone, coupled with concerns about rising natural gas prices. According to Kit Juckes, currency strategist at Société Générale, sterling was “getting bashed” as investors scaled back their long positions.
“A lot of traders hold sterling, which makes it particularly vulnerable during dollar rallies, especially in thin trading conditions,” Juckes noted.
Market Reactions in Equity and Currency Trading
In the equity markets, US stocks reversed early gains to close slightly lower, with the S&P 500 and Nasdaq Composite both dipping 0.2%. Analysts attribute these moves to cautious trading as investors digest mixed economic signals.
Conclusion: Dollar Set to Maintain Strength Amid Global Uncertainty
The US dollar’s surge reflects investor confidence in the resilient American economy and the Federal Reserve’s measured approach to rate cuts. Conversely, weaker economic prospects in the UK and eurozone, combined with geopolitical concerns, continue to weigh on sterling and the euro.
With the dollar rallying and outperforming major currencies, it remains the preferred safe-haven asset in uncertain times.
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