In early Asian trading, the euro and the New Zealand dollar hit more than two-year lows of $1.0242 and $0.5565, respectively. Trading was quieter as Japan was closed for a holiday.
The Australian dollar also struggled to escape a more than four-year low of $0.6139, now up just 0.1% at $0.6153.
A report released on January 12 showed that US employment increased more than expected in December 2024, with the unemployment rate falling to 4.1%. This data reinforces the steady growth of the US labor market, forcing investors to reduce expectations that the US Federal Reserve (Fed) will cut interest rates this year.
Nick Rees, director of macro research at Monex Europe, said: "The latest data once again confirms that the US economy is still outperforming other economies. The US labor market has stabilized, while inflation risks remain from the expected economic policies of the upcoming Trump administration."
Accordingly, the market is now only forecasting the Fed to cut interest rates by 27 basis points this year, down from the forecast of about 50 basis points at the beginning of the year.
Expectations of a rate cut have also been tempered by President-elect Donald Trump’s plans for higher tariffs, tax cuts and tighter immigration, which are expected to increase inflation. Mr Trump officially returns to the White House next week.
Before that, US inflation data will be released on January 17. Any sharp increase in this data could completely extinguish the interest rate cut expectations. In addition, a series of Fed officials will also speak this week, attracting the attention of the market.
Currently, the USD Index - measuring the greenback's strength against major currencies - is at 109.67, near its highest peak since November 2022.
The Japanese yen fell 0.12 percent to 157.92 yen per dollar, but was supported by news that the Bank of Japan may raise its inflation forecast at its policy meeting this month, paving the way for another interest rate hike.
Meanwhile, the British pound edged up 0.07% to $1.2204, but remained near a 14-month low of $1.2239. Concerns about rising borrowing costs and financial uncertainty in the UK continued to weigh on the pound.
"All the factors are pointing to a weakening pound and any recovery will be quickly followed by a sell-off," said Chris Weston, head of research at Pepperstone.
In China, the yuan traded at 7.3605 yuan per dollar, little changed from the end of last week. The People’s Bank of China had earlier suspended purchases of Treasury bonds on Jan. 12, sending yields higher and fueling speculation that the central bank was trying to defend the yuan.
