USD: US Dollar rebounds after strong jobs data

The US Dollar (USD) rallied on Friday after data showed the world’s largest economy created more jobs than expected last month, reinforcing expectations that the Federal Reserve will pause its rate-cutting cycle at its policy meeting later this month.

A Labor Department report showed the U.S. economy added 256,000 jobs in December, much higher than economists’ forecasts for an increase of 160,000. The unemployment rate, meanwhile, dipped to 4.1%, compared with expectations of a 4.2% reading.

The dollar climbed 0.5% against the yen to 158.765 yen, while the euro dropped to its lowest since November 2022 versus the greenback. The single euro zone currency was last down 0.6% to $1.024.

Dollar: USD Dominance in Global Trade Explained

About the currency

The United States dollar (USD) is the official currency of the United States and is widely considered the most widely traded and widely held currency in the world.

The US dollar’s dominance in global trade can be attributed to several historical and economic factors:

1. Post-WWII Bretton Woods Agreement: In 1944, the Bretton Woods Agreement established the US dollar as the global reserve currency, pegging other currencies to the dollar, which in turn was pegged to gold. Although the gold standard was abandoned in 1971, the dollar’s status as a reserve currency remained.

1. Economic dominance: The United States has historically been one of the world’s largest and most stable economies, with a strong military, technological innovation, and a diverse industrial base.

1. Global trade and finance: The US dollar is widely used for international transactions, such as trade, investment, and lending. Many countries peg their currencies to the dollar, and it is commonly used as a reserve currency by central banks.

1. Petrodollars: In the 1970s, the Organization of the Petroleum Exporting Countries (OPEC) agreed to price oil in US dollars, creating a massive demand for dollars and further solidifying its position as a global reserve currency.

1. Network effects: As more countries and companies use the US dollar for international transactions, it becomes increasingly convenient and efficient for others to do so, creating a self-reinforcing cycle.