The dollar index (DXY00) Monday rose by +0.23% and posted a new 2-year high. The dollar on Monday had carryover support from last Friday’s stronger-than-expected US Dec payroll report that reduced the chances of Fed rate cuts. Also, higher bond yields on Monday strengthened the dollar’s interest rate differentials as the 10-year T-note yield rose to a 14-month high. The dollar fell back from its best levels after stocks recovered from early sharp losses, which reduced liquidity demand for the dollar.
The markets are discounting the chances at 3% for a -25 bp rate cut at the January 28-29 FOMC meeting.
