The dollar climbed to its highest level in almost three months against nine major currencies on Monday as traders slashed bets that the Federal Reserve would aggressively cut interest rates this year after new economic data further diminished those odds.
According to Reuters, US services sector growth picked up in January as new orders increased and employment rebounded, the Institute for Supply Management (ISM) said, suggesting economic growth momentum from the fourth quarter spilt over into the new year.
ISM’s non-manufacturing PMI increased to 53.4 from 50.5 in December, higher than the 52.0 economists polled by Reuters had forecast. A reading above 50 indicates growth in the services industry, which drives more than two-thirds of the economy.
The data added to Friday’s vital US jobs report that far exceeded expectations and forced the market to readjust its outlook for rate cuts, the dollar’s strength and how high Treasury yields, which act to bolster the US currency, can go.
Treasury yields started to rise early on Monday after Fed Chair Jerome Powell said over the weekend that the US central bank could “give it some time” before cutting rates. Yields rose further on news of the ISM survey.
The dollar rose against all members of the G10 grouping of currencies that are among the most liquid in the world.
The dollar index, which tracks the greenback against six other major currencies, jumped to 104.60, its highest since November 14, and was last up 0.36% at 104.40.
The two-year Treasury yield was last up 9.4 basis points at 4.46% after jumping 18 bps on Friday.
The euro fell to its lowest since November 14 at $1.07 and was down 0.43% at $1.07.
Sterling was down 0.75% to $1.25, its lowest since December 13, as the dollar rallied.
