The dollar surged to a two-year high, while the pound and euro came under pressure.

Due to strong US employment market data boosting investors' confidence in the world's largest economy, the US dollar surged to a two-year high against the euro and an eight-month high against the pound on Thursday. The pound, one of the best-performing G10 currencies last year, fell by 1.2% to $1.2371, its lowest level since the end of April; the euro dropped by 0.9% to $1.0261, its lowest level since November 2022. The US dollar index, which tracks the dollar against a basket of six currencies including the pound and euro, rose by 0.7%. The performance of the forex market on Thursday reflects investors' increasing belief that the resilience of the US economy and ongoing inflation will limit the pace of rate cuts by the Federal Reserve this year, thus enhancing the attractiveness of the US dollar relative to other major currencies. Data showed that initial jobless claims in the US fell to an eight-month low last week, further proving the strength of the job market. The market expects the Federal Reserve to cut rates by about 0.43 percentage points by the end of 2025. Due to weak economic growth expectations in the UK and the eurozone, the Bank of England and the European Central Bank are expected to cut rates by 0.59 and 1.08 percentage points respectively during the same period. In the stock market, early gains in the US were erased, and all three major indices closed lower. The pound was hit hard on Thursday, with investors cutting their long positions. Kit Juckes, a foreign exchange strategist at the French Industrial Bank, said: "A big surprise at the end of last year was that traders usually hedge their US dollar positions, but almost no one did. The pound is a currency held by many investors, so when the dollar continues to strengthen, the pound appears particularly vulnerable in thin trading conditions." Furthermore, analysts pointed out that weak manufacturing data from the UK and the eurozone released early on Thursday and the threat of rising natural gas prices also put pressure on the pound and euro. Early Wednesday morning, Russia halted the flow of natural gas through Ukraine to EU countries due to the expiration of a five-year agreement. This forced European countries to import more expensive liquefied natural gas from elsewhere. According to data from the European gas infrastructure industry, the EU is consuming its natural gas reserves at the fastest pace since the energy crisis three years ago due to increased demand caused by cold winter weather. Lee Hardman, a currency strategist at MUFG Bank, said: "Higher natural gas prices will have a negative impact on trade conditions for the UK and other eurozone economies as they are major energy importers." David Oxley, Chief Climate and Commodity Economist at Capital Economics, added that higher EU natural gas prices will continue to pressure the industrial sector in the region but will not "significantly alter the outlook for inflation and interest rates." Although the strength of the US dollar may continue, the future performance of the pound and euro will still be influenced by economic fundamentals and the trend in energy prices.