The dollar rose broadly on Monday after strong U.S. jobs growth in June suggested the Federal Reserve will not aggressively cut interest rates later this month.
U.S. nonfarm payrolls rebounded in June to 224,000, the most in five months, data showed on Friday, beating economists’ consensus estimate of 160,000.
The solid outcome virtually wipes out chances for a half point Fed rate cut at the end of July, but modest wage gains and other data showing the world’s largest economy was losing steam could still encourage the central bank to cut rates by 25 basis points.
The dollar index climbed to as high as 97.443 on Friday, its highest level since June 19, as U.S. Treasury yields rose across the board.
The index, which measures the greenback against a basket of major currencies, was last quoted at 97.215, almost flat in Asian trade on Monday, while the euro traded at $1.1226.
The common currency came under pressure on Friday after data showed that German industrial orders fell far more than expected in May and the Economy Ministry warned that this sector of Europe’s largest economy was likely to remain weak in the coming months.
Against the yen, the dollar advanced to as high as 108.640 on Friday, its highest since June 18. The pair was last quoted at 108.33 yen.
“There is no great urgency for the Fed to act, and surely not by the half a percentage point move,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.
As traders’ focus quickly shifted to Federal Reserve Chairman Jerome Powell’s Congressional testimony, due on Wednesday and Thursday, Chandler said it might be too late to persuade the market that the Fed will not cut rates now.
“But Powell can lean against the idea that the Fed will cut rates 75 bp this year, by emphasising the still robust expansion, strong financial conditions, and perhaps couching a cut in terms of ‘insurance.’”
The British pound hit a six-month low to the dollar on Friday, after poor economic data and a rise in expectations that the Bank of England will cut interest rates. Better-than-expected U.S. jobs data sparked a rally in the dollar, adding to sterling’s losses.
Sterling plunged to as low as $1.2481, its lowest since the “flash crash” on January 3 when the pound dropped to $1.2409. It last quoted at $1.2525.
Elsewhere, the Turkish lira weakened sharply after President Tayyip Erdogan dismissed the central bank governor, sparking worries about the bank’s independence.
The lira slid to as low as 5.8245 to the dollar, its lowest in two weeks, in early Asian trade and last traded at 5.7500, after paring some of its losses.
“The lira took a big hit over uncertainty about Turkey’s monetary sovereignty, coupled with the post-U.S. jobs report dollar rally. I think the knee-jerk reaction is over now,” said Koichi Kobayashi, chief manager of forex and financial products trading division at Mitsubishi UFJ Trust and Banking Corp.
Governor Murat Cetinkaya, whose four-year term was due to run until 2020, was replaced by his deputy Murat Uysal, a presidential decree published early on Saturday in the official gazette showed.