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The dollar rose to a two-year high against the euro and an eight-month high against the pound on Thursday after strong US labor market data boosted investor confidence about the strength of the world's largest economy.
The pound, which was the best performing G10 currency against dollar Last year, it fell as much as 1.2 percent to $1.2371, its lowest level since late April, while the euro fell 0.9 percent to $1.0261, its lowest level since November 2022.
An index that tracks the dollar against a basket of six peers, including… sterling The euro rose 0.7 percent.
Thursday's moves reflect investors' growing belief that resilient US economic growth and persistent inflation will limit the speed of the Fed's cuts. Interest rates This year, which led to enhanced demand for the dollar compared to other major currencies.
Data on Thursday showed that new applications for unemployment benefits reached their lowest level in eight months last week.
Markets expect the US central bank to cut interest rates by 0.43 percentage points by the end of 2025. Slower growth forecasts for the UK and the eurozone mean that the Bank of England and the European Central Bank are expected to cut interest rates by 0.59 percentage points and 1.08 percentage points. points in a row over the same period.
In stock markets, US stocks gave up early gains to trade lower by lunchtime in New York, with the S&P 500 down 0.6 per cent and the Nasdaq Composite, dominated by technology stocks, down 0.7 per cent.
Kit Jukes, currency strategist at Société Générale, said the pound “came under pressure” on Thursday, as investors trimmed their long positions in the currency.
“The biggest surprise at the end of last year was that there were very few dollar sales, when traders would normally hedge their positions,” Jukes said.
He added: “The pound is a currency that a lot of people own, which makes it a bit vulnerable when the dollar continues to rise, especially in weak trading (conditions).
Other analysts said weak UK and Eurozone manufacturing data released Thursday morning and the threat of higher natural gas prices could also weigh on both the pound and the euro.
In the early hours of Wednesday, the flow of Russian gas through Ukraine to European Union countries stopped after the expiration of a five-year agreement, meaning European countries will have to import more expensive liquefied natural gas from elsewhere.
The European Union was emptying its gas storage facilities at the fastest pace since the energy crisis three years ago, as cold winter weather boosted demand, according to data from Gas Infrastructure Europe, an industry body.
Lee Hardman, currency strategist at MUFG Bank, said: “Rising gas prices will have a negative impact on terms of trade for the UK and other euro zone economies, given that they are large energy importers.”
Higher EU natural gas prices will keep pressure on the region's industrial sector, but will not “move the needle on inflation expectations and interest rates,” said David Oxley, chief climate and commodities economist at Capital Economics.
Additional reporting by Harriet Clarvelt in New York
