The US dollar index rose 1% to 105.27, the highest level since December 8. The dollar jumped against the euro, gaining 0.7% to buy 0.9497 euros, and against the Japanese yen rose 0.7% to buy 113.68 yen.
Fouad Razzaqzadeh, market analyst at Forex.com, wrote in a note that "the rapid recovery of the dollar" saw the dollar rise against the British pound, the dollar rose 1.3% against the UK currency.
The US dollar index rose
The US dollar index rose 1% to 105.27, the highest level since December 8. The dollar jumped against the euro, gaining 0.7% to buy 0.9497 euros, and against the Japanese yen rose 0.7% to buy 113.68 yen.
- Interest rates expected to continue rising this year
After the report, investors priced in stronger expectations that the Federal Reserve will continue to raise interest rates this year, a prospect that enhances the dollar's attractiveness against other currencies. CME FedWatch showed a 41.9% probability that the Federal Reserve will increase the federal funds rate by 50 basis points at its Feb. 1 meeting, up from 30.3% the previous day.
Razakzadeh said the ADP report downplayed concerns about declining employment and raised concerns that wage inflation could accelerate further and thus provide a major source of risk in inflation expectations.
"Accordingly, traders raised their expectations for final interest rates in the United States," he added, with federal funds futures for June pointing to a rate rise above 5%.
For the Fed's March 22 decision, the odds of a rate hike increased by 25 basis points to 37.1% from 25.1% the previous day. For the May 2 issue, the odds of a rate hike rose by a quarter point to 15% from 9.8%. Such a move would put the federal funds rate in the range of 5.25% to 5.5%.
See also: At the beginning of 2023.. Oil prices fall below $75
Wednesday's minutes from the Fed's December meeting showed that policymakers do not expect to start cutting rates in 2023, a view held by many major banks and economists who expect a recession.
The minutes showed that the Fed believes inflation remains "unacceptably high", while the Fed's target is 2%.