The dollar hit recent highs against both the euro and pound sterling on Thursday as investors responded positively to strong employment data.

The euro fell 0.9% to $1.0267, its lowest level against the US currency since November 2022, while the pound declined 1.3% to $1.2354, its lowest level since April.

Data published on Thursday showed the new applicants for US unemployment benefits decreased to an eight-month low last week.

Markets also expect the US Federal Reserve to lower rates by 0.43 percentage points over the course of 2025 while the Bank of England (-0.59pp) and the ECB (-1.08pp) are expected to cut rate more quickly, increasing demand for the dollar relative to other major currencies.

Sterling was “getting bashed” on Thursday as investors trimmed their long positions on the currency, said Kit Juckes, a currency strategist at Société Générale.

“A big surprise at the end of last year was that there was very little selling of the dollar, when traders usually hedge their positions,” Juckes said.

“Sterling is a currency that a lot of people own, which leaves it a bit vulnerable when the dollar keeps on rallying, particularly in thin trading [conditions],” he added.

Other analysts have blamed weaker UK and eurozone manufacturing data and the prospect of higher natural gas prices for the relative weakness of both sterling and euro.

In equity markets, the S&P500 and the Nasdaq both closed down 0.2% on Thursday after giving up early gains.

On Friday morning in Asia, the pound stood slightly higher at $1.2390 while the euro was trading at $1.0271.

An index tracking the dollar against a basket of six peers, including sterling and the euro, was on track for a weekly gain of 1.1%, its best performance in more than a month.

(Pic: Getty Images)