The Dollar rose on Monday as dealers speculated that growing inflationary pressures could prevent aggressive Federal Reserve interest rate cuts despite surprisingly weak jobs growth in December. News on Friday that the United States' unemployment rate jumped to 5% last month, a two-year high, sparked talk of a recession and prompted some institutions to call for the benchmark fed funds rates to be slashed by 50bp to 3.75% later this month. But analysts said inflation concerns would likely see the Fed opt for a 25bp cut when it meets on Jan. 30, giving the dollar some respite for the day. Analysts said there was also a reluctance to continue selling the Dollar, regardless of poor economic data, because the Dollar's decline appeared close to bottoming out.
The Euro appreciated 10.5% against the Dollar in 2007. The EurUsd fell 0.41% to 1.4682 on Monday, while GbpUsd recovered from 4-1/2-month lows of 1.9653 to still trade down 0.35% at 1.9667.
Reports that five Iranian boats harassed US Navy ships in the Strait of Hormuz at the weekend saw the Dollar attract some safe-haven flows. The Dollar also firmed against the Swiss franc, rising 0.84% to 1.1177.
Federal Reserve Bank of Atlanta President Dennis Lockhart on Monday cautioned against overreacting to December's jobs report, adding he was concerned about inflation and equally or more worried about slower growth. Lockhart is not a voting member this year. Treasury Secretary Henry Paulson tried to allay fears of a recession saying the US economy would continue to grow despite the housing downturn, while President George W. Bush called on Congress to make permanent the tax cuts enacted during his administration that are set to expire in coming years. Attention this week will focus on Fed Chairman Ben Bernanke's speech on Thursday as well as the European Central Bank and Bank of England meetings. Both central banks are expected to keep interest rates on hold on Thursday at 4% and 5.5%, respectively, although the BoE decision will be an extremely close call. UK rates futures are attaching around a 45% chance the Central Bank will cut rates 25bp, which would likely weigh on Sterling.