The US dollar soared to 2.5 month highs

The dollar's upward trend, which started on Friday, persisted at the start of the week.

The dollar index surpassed 104 and exceeded the previous highs from December of the previous year.

The robustness of the USD is backed by solid statistics regarding the US job market.

The market is reevaluating its high hopes for the Fed to implement looser monetary policies.

On Monday, the Dollar Index (DXY) reached a peak of 2.5 months due to traders revising their high predictions for the Federal Reserve's potential interest rate reductions in the current year.

According to Reuters, the Federal Reserve's prediction for interest rates has been updated in response to the impressive US employment report released on Friday. The report greatly surpassed market predictions and caused a significant increase in US bond yields, resulting in a stronger US dollar.

On Monday, Treasury yields increased further following remarks from Fed Chairman Jerome Powell on Wednesday, where he stated that the central bank may delay reducing interest rates.

According to the FxPro analyst team, the recent increase in wages and employment in January is well above the usual growth patterns, suggesting that the economy is experiencing excessive heat. The latest statistics from Friday have led the market to believe that there is only a 15% possibility of a rate reduction on March 20, which is a significant difference from the 90% prediction at the end of December.

Powell stated on Sunday evening that due to the robust economy, the Fed may exercise caution when considering the timing of rate cuts. He also restated that a rate cut in March is improbable.

Saxo Bank points out that the dollar's bullish trend is gaining momentum due to multiple factors, causing markets to reassess their predictions for a rate decrease in March following Powell's remarks.

MUFG suggests that there are still chances to improve the strength of the dollar. The primary threat to the dollar could be an increase in worries about the well-being of regional banks in the US.

According to FxPro, it is important to anticipate that the DXY may increase by 1.5% to 105.7 by the upcoming inflation report on February 13, reaching levels that have not been observed since early November.