The dollar and other major currencies were in a holding pattern on Monday as investors turned their attention to this week’s US midterm elections, which could shift the balance of power in Congress and control over the federal purse strings.<\/p>\n
Sheldon Cooper | Lightrocket | Getty Images<\/p>\n
The U.S.\u00a0dollar\u00a0index jumped on Friday and was on pace for its biggest \u2060daily percentage gain in seven weeks as it extended gains after a stronger-than-expected U.S. payrolls report.<\/p>\n
The Labor Department\u00a0said U.S. nonfarm payrolls jumped by 165,000 jobs last month, topping the \u200b65,000 estimate of economists polled by Reuters, after \u200ban upwardly revised 60,000 gain in September, \u200bwhile the unemployment rate dipped to 4.1%.<\/p>\n
The report gives the Federal Reserve latitude to continue to hike interest rates, and market expectations for an increase of at least 25 basis points at the central bank’s December meeting moved back up towards 80% in the wake of the report, according to the \u2060CME \u200cFedWatch tool.<\/p>\n
The\u00a0dollar\u00a0index, which measures the greenback against a basket of six major currencies, surged \u20600.63% to 102.12, with the euro<\/a> tumbling 0.55% to $1.1157. The\u00a0dollar\u00a0was on track for its biggest daily percentage gain since\u00a0September 16, while the euro was on pace for its biggest one-day decline since\u00a0October 7.<\/p>\n Expectations the Fed would hike next month had fallen to about 67% on Thursday as U.S. equities plummeted, with the S&P \u200c500 wiping out about\u00a0$3 trillion\u00a0in market value while the Nasdaq suffered its biggest one-day percentage drop in 19 months on fears that tougher government regulations on the AI buildout after the U.S. midterm elections would stunt economic growth.<\/p>\n Democrats\u00a0are planning to unleash \u200ba flood of new legislation targeting artificial intelligence systems and data-center development when they take control of the\u00a0U.S. Congress\u00a0in January, lawmakers, congressional aides and advocates said.<\/p>\n Shifting dynamics<\/p>\n The\u00a0dollar\u00a0was higher before the jobs data, buoyed by safe-haven demand, as the selloff in AI stocks spread worldwide, although U.S. stocks had stabilized in the early stages of trading and the Nasdaq rallied \u2060nearly 2%.<\/p>\n Treasury\u00a0yields moved higher in the wake of the jobs report, with the 10-year yield up 3.1 bps to 4.868% and the 2-year yield rising 5.5 \u200cbps to 4.532%.<\/p>\n “It’s the same old conversation of, at any given moment, is the\u00a0dollar\u00a0trading \u200cmore on a safe-haven basis, or is it trading more on an interest rate differential basis? And those things, sometimes it’s one or the other, and they can be completely at odds with one another, and it’s not really rational,” said\u00a0Eugene Epstein, head of trading and structured products at Moneycorp in\u00a0Stamford, Connecticut.<\/p>\n “Now that \u2060the dust is kind of settling a little bit, the market’s digesting the new normal for the next two years, I would \u2060argue that the correlations should start being a little more rational again going forward.”<\/p>\n Addressing inflation<\/p>\n New York Federal \u2060Reserve President\u00a0John Williams\u00a0said on Friday that U.S. economic growth has remained remarkably resilient in the face of successive shocks but inflation is too high and it is essential to bring it back to 2%.<\/p>\n Separately, the European \u200bCentral Bank’s chief economist\u00a0Philip Lane\u00a0said the central bank’s main job \u200cis to ensure that any spillover from high energy prices to other prices is limited and that inflation can be returned to 2% “over the next year or two.”<\/p>\n Sterling<\/a> dropped 0.62% to\u00a0$1.3366, pulling back following a climb to a more than seven-week high on Thursday after the\u00a0Bank of England\u00a0raised interest rates for the first time in more than three years.<\/p>\n