The US dollar reached its highest level in over two years, driven by Friday's unexpectedly strong employment report that showed accelerating job growth and a 4.1% unemployment rate. This economic strength has dramatically shifted market expectations, with traders now questioning whether the Federal Reserve will cut rates at all in 2025, down from previous expectations of two quarter-point cuts. The dollar's surge is creating widespread pressure on global currencies, particularly affecting the euro, which dropped to $1.0177, and the British pound, which fell to $1.21. The situation could intensify depending on Wednesday's US inflation data and President-elect Trump's upcoming policies on tariffs, taxes, and immigration, which could potentially fuel inflation. For the UK, the currency weakness is compounded by concerns over rising borrowing costs and potential government spending cuts expected in March.

US Treasury yields surged to multi-month highs following strong December employment data, with the 10-year yield reaching 4.80% and the 30-year approaching 5%. The selloff, driven by persistent inflation concerns and growing government debt, has led markets to price in fewer rate cuts for 2025 and is causing ripple effects across global markets, strengthening the dollar to a two-year high.

Global bond markets are in turmoil following stronger-than-expected US jobs data, forcing a worldwide repricing of interest rate expectations. While the US economy's strength might justify higher rates, countries like the UK face a more challenging scenario, combining mediocre growth with inflation concerns and currency weakness. The Bank of England is now expected to deliver fewer rate cuts in 2025 than previously anticipated, with markets predicting just two quarter-point cuts from the current 4.75%. The situation is particularly concerning for the UK as oil prices rise above $80 per barrel while sterling weakens, threatening to push inflation above 3% by April. This global reset in rate expectations could have far-reaching implications for asset prices, especially those valued based on assumptions of returning to the low-rate environment of 2012-2020. Japan's potential monetary policy normalization adds another layer of risk, as Japanese capital might flow homeward, affecting global market liquidity.

A historically rare phenomenon is unsettling investors as the 10-year Treasury yield has climbed by about the same magnitude as the Federal Reserve's recent rate cuts, something that's happened only twice since the early 1980s. The benchmark yield has surged from 3.6% to 4.77% since mid-September, nearly matching the Fed's full percentage point in rate cuts. This unusual movement breaks from the typical pattern where long-term rates fall during Fed easing cycles. Market experts attribute this divergence to multiple factors, including persistent inflation concerns, strong economic data, and uncertainty around President-elect Trump's policies. The situation echoes elements of the 1981 market environment under Fed Chair Paul Volcker, raising questions about the Fed's ability to achieve its 2% inflation target and potentially forcing a reassessment of rate cut expectations for 2025.

The global bond market is facing a dramatic reset as yields surge across major economies, led by the $28 trillion US Treasury market. Just days into 2025, yields have climbed significantly, with the 10-year Treasury rate rising over a percentage point in four months and approaching the symbolic 5% level. This bond market "tantrum" reflects multiple pressures: surprisingly robust economic data, reduced expectations for Fed rate cuts, and growing concerns about US fiscal policy ahead of Trump's return to the White House. The implications are far-reaching, affecting everything from mortgage rates and corporate borrowing costs to stock market sentiment. Adding to market anxiety is the unusual disconnect between Fed policy and market yields, as rates continue rising even after the Fed began its easing cycle in September. With fiscal deficits projected to exceed 6% of GDP and expectations of Trump's growth-focused policies potentially expanding deficits further, some analysts warn of the return of "bond vigilantes" who may force a reckoning over fiscal policy.

Federal Reserve officials Michelle Bowman and Jeff Schmid have signaled a cautious stance on future rate cuts, suggesting that the benchmark rate may already be close to its "neutral" target following 100 basis points of reductions since September. Their position contrasts with other Fed officials, including Chairman Powell and Governor Waller, who maintain that rates remain restrictive. Bowman expressed particular concern about strong economic growth and a 20% rise in the stock market, warning of potential inflation risks. The differing views among Fed officials point to a potentially widening divide within the committee in 2025, with clarity on President-elect Trump's economic policies potentially helping to bridge these differences. Notably, Bowman, who is considered a frontrunner for the Fed vice chair for supervision role, also called for increased transparency in bank regulation.

Bitcoin experienced a significant decline on Monday, falling 4.4% to $90,199, marking its lowest point since November 18 and a sharp retreat from December's peak of $108,316. The selloff was triggered by stronger-than-expected US employment data that reduced expectations for near-term Federal Reserve rate cuts. The cryptocurrency market's weakness extends beyond Bitcoin, with Ether dropping 6.6%, reflecting broader concerns in the digital asset space. Technical analysts note a concerning head and shoulders pattern formation, suggesting a potential trend reversal from bullish to bearish territory. While Bitcoin's 2024 rally was fueled by the approval of US exchange-traded funds and President-elect Trump's supportive stance, market enthusiasm has cooled in early 2025 as investors await clarity following the upcoming inauguration.

US stocks tumbled Monday, with tech leading the decline as the Nasdaq fell 1.6% and the S&P 500 dropped 0.8%. Markets reacted to diminishing hopes for interest rate cuts after strong December jobs data, with traders now expecting no cuts until September 2025. The 10-year Treasury yield reached a 14-month high near 4.8%, while the dollar surged to a two-year peak against major currencies. Adding to market pressures, oil prices climbed to five-month highs following new US sanctions on Russian crude, while the "Magnificent Seven" tech giants, including Nvidia, Apple, and Tesla, all lost ground. Investors are now closely watching Wednesday's Consumer Price Index report for further clues about the Federal Reserve's potential policy moves.

Gold prices dropped 0.5% to $2,677.13 per ounce following strong U.S. jobs data that dampened expectations for early Fed rate cuts. While a strengthening dollar pressured gold prices, ongoing uncertainty around President-elect Trump's proposed trade policies and inflation concerns continued to provide underlying support for the precious metal.

‘That’s a Wrap’ By Rod Blake As the brokers, investors, traders and portfolio managers settled...