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The dollar hit a two-year high against major currencies on Monday after strong US jobs data late last week prompted traders to lower expectations for further interest rate cuts by the Federal Reserve.
The dollar index, which tracks the U.S. currency against the yen, euro and other major currencies, hit its highest level since November 2022, with the pound falling 0.5 percent to $1.216 — a new 14-month low. Investors expect that a stronger U.S. economy could slow the Fed’s pace of rate cuts, drawing investment away from other markets.
Shares in China, India, South Korea and Australia also fell on Monday after Friday’s US payrolls report showed 256,000 jobs were added in December, beating consensus estimates.
“People are surprised by the economic strength in the US,” said Jason Lui, head of Asia-Pacific equity and derivatives strategy at BNP Paribas. “With US interest rates so high, you’re going to have liquidity outflows in Asia, and capital will either flow to the US or stay there.”
Australia’s S&P/ASX 200 index fell 1.2 percent, while South Korea’s Kospi fell 1.1 percent. India’s Sensex fell 0.8 percent. Japanese markets were closed on Monday.
“Emerging market stocks have traditionally performed better when US interest rates are lower,” said Sunil Tirumalai, head of Asia equity strategy at UBS. “The Fed is not cutting and weak currencies mean less room for Asian interest rate cuts.”
Hong Kong’s Hang Seng index fell 1.2 percent, while China’s CSI 300 fell 0.5 percent.
“The mainland (Chinese) market is still more resilient to external noise,” said Lui, who said mainland investors were still shifting funds from low-yielding savings accounts to the stock market.
Still, shares in mainland China have fallen steadily by 17 percent since a peak on Oct. 8 last year, as hopes of a bazooka-style stimulus from Beijing faded and worries about the economic impact of Donald Trump’s second term hit the market.
“Some of the stimulus measures were a positive surprise,” said Tirumalai, who acknowledged that China was still in a “bear market.” “For example, the extension of the exchange scheme to a wider range of consumer goods came earlier than we thought.”
Oil prices rose to their highest level in four months after the US announcement new sanctions on Russian oil on Friday.
Brent crude oil prices, the international benchmark, rose 1.6 percent to $81 a barrel, while the U.S. West Texas Intermediate index rose 1.7 percent to $77.90 a barrel.