FX MARKET UPDATE 13/01/2025

 The Dollar soared on Monday, pushing its peers to multi-year lows, after a robust US jobs report highlighted the strength of the world's largest economy and complicated the outlook for additional Federal Reserve rate cuts this year. The greenback surged to its highest level in over two years, reaching 109.98 against a basket of currencies, continuing a rally that began last week. Friday's data revealed that US job growth unexpectedly picked up in December, while the unemployment rate dropped to 4.1%, signalling a strong finish for the labour market. As a result, traders significantly reduced their expectations for Federal Reserve rate cuts this year. Markets are now anticipating only 27 basis points of Federal Reserve rate cuts this year, a sharp reduction from around 50 basis points at the beginning of the year. With the US inflation report due on Wednesday, any unexpected increase could effectively rule out rate cuts, Reuters reports. In addition, several Federal Reserve officials are scheduled to speak this week, which could further influence market expectations.

Elsewhere, the Euro fell to its lowest level since November 2022, reaching $1.0275, while the British Pound was one of the biggest losers, dropping over 0.5% to a 14-month low of $1.2128. Sterling has been facing pressure due to domestic concerns about rising borrowing costs and increasing anxiety over the state of Britain's finances. It dropped 1.8% last week.

Meanwhile, the Australian Dollar plunged to its lowest level since April 2020, reaching $0.6131. The New Zealand Dollar traded 0.05% lower at $0.55525, staying near a more than two-year low.

In addition, the Indian Rupee plummeted to a new all-time low on Monday, on track to record its biggest single-day drop in over two years, weighed down by a surge in the US Dollar, likely outflows from local equities, and limited intervention from the central bank. The Rupee fell to 86.5825, down nearly 0.7% on the day, its sharpest drop since February 2023. It has lost 2.3% since December amid concerns over India's slowing growth and expectations that the central bank could cut rates as early as February. “The Rupee's slide can continue for some time as negative factors have stacked up quite a bit unless the central bank announces some measures,” stated Anshul Chandak, head of treasury at RBL Bank, who believes the 87 handle is “just around the corner,” for the Rupee.

The South African Rand remained close to a nine-month low early Monday, weighed down by the strong Dollar and the uncertain outlook regarding potential interest rate cuts by the Federal Reserve. At the time of writing the Rand was trading at 19.1525 against the Dollar, around 0.3% weaker than its previous close. On Friday, it reached 19.2050 per Dollar, its lowest level since late April.

In contrast to the global trend, the Chinese Yuan gained on Monday after Beijing intensified efforts to defend the weakening currency by relaxing rules to permit more offshore borrowing and issuing verbal warnings. Following these announcements, the onshore Yuan rose slightly, last trading at 7.3318 per Dollar, though it remained close to a 16-month low. The offshore Yuan saw more significant gains, rising over 0.15%. It was last trading at 7.3535 per Dollar.

In Japan, the Yen gained 0.1% to reach 157.53. Its decline was tempered by reports that Bank of Japan policymakers might raise their inflation forecast at an upcoming policy meeting this month, potentially signalling another interest rate hike.