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The dollar rose to a two-year high against the euro and an eight-month high against sterling on Thursday after strong US jobs data added to investor confidence about the strength of the global economy.
The pound, which was the best G10 currency against the a dollar last year, it fell as much as 1.2 percent to $1.2371, its lowest level since the end of April, while the euro fell 0.9 percent to $1.0261, its lowest level since November 2022.
The index tracks the dollar against a basket of six peers, including nice and the euro, up 0.7 percent.
Thursday's moves reflect investors' growing belief that steady US economic growth and persistent inflation will quickly prevent Federal Reserve tapering. interest rate this year, strengthening the demand for the dollar compared to other major currencies.
Data on Thursday showed that new claims for unemployment benefits hit an eight-month high last week.
Markets expect the US central bank to cut rates by 0.43 percent by the end of 2025. Slower growth forecasts for the UK and the Eurozone mean that the Bank of England and the European Central Bank are expected to cut rates by 0.59 percentage points and 1.08 percentage points respectively over the same period.
In equity markets, US stocks gave up early gains to trade lower at lunchtime in New York, with the S&P 500 down 0.6 percent and the technology-heavy Nasdaq Composite down 0.7 percent.
Sterling was “under attack” on Thursday as investors trimmed their long positions in the currency, said Kit Juckes, chief economist at Société Générale.
“The big surprise at the end of last year was that there was little selling of the dollar, when traders were always protecting their positions,” said Juckes.
“Sterling is the currency of many people, which leaves it vulnerable when the dollar continues to rally, especially in less trade (situations),” he added.
Some analysts said weak manufacturing data for the UK and the Eurozone released on Thursday morning and the threat of higher natural gas prices could weigh on both sterling and the euro.
In the early hours of Wednesday, Russian gas stopped flowing from Ukraine to EU countries after a five-year deal expired, meaning European countries will be forced to import more expensive LNG elsewhere.
The EU has been drawing down its gas storage facilities at the fastest pace since the energy crisis three years ago as cold winter weather boosted demand, according to data from Gas Infrastructure Europe, an industry body.
“Higher gas prices could be bad for the UK's terms of trade with other euro economies, given that they are big consumers of energy,” said Lee Hardman, chief economist at MUFG Bank.
David Oxley, climate and commodities expert at Capital Economics, said higher EU natural gas prices would keep pressure on the region's industrial sector but “will not move the needle on the outlook for inflation and interest rates”.
Additional reporting by Harriet Clarfelt in New York