The dollar surged to a two-year peak against key currencies on Monday, thanks to robust US jobs data from late last week that made traders rethink their expectations for more interest rate cuts from the Federal Reserve.

The dollar index, which measures the US currency against the yen, euro, and other major currencies, hit its highest point since November 2022. Meanwhile, the pound dropped 0.5% to $1.216, marking a new 14-month low.

Stocks in China, India, South Korea, and Australia also took a hit on Monday after the US payrolls report revealed that 256,000 jobs were added in December, far exceeding predictions and sparking worries that a strong economy might slow down the Fed's rate-cutting plans.

“People are surprised by the economic strength in the US,” said Jason Lui, head of Asia-Pacific equity and derivative strategy at BNP Paribas. “With US interest rates so high you will have a liquidity drain in Asia, with capital flowing to the US or staying there.”

The S&P/ASX 200 In Australia experienced a 1.2% decrease, alongside a 1.1% decline in South Korea’s Kospi. India’s Sensex also fell by 0.8%. Japanese markets were closed on Monday.

“Emerging market equities traditionally perform better when US interest rates are lower,” said Sunil Tirumalai, head of Asian equity strategy at UBS. “The Fed not cutting and weak currencies means less room for Asian rate cuts.”

The Hang Seng Index In Hong Kong experienced a 1.2% decrease, while the CSI 300 in mainland China fell by 0.5%.

“The onshore [Chinese] market is still more resilient relative to external noise,” said Lui, who said mainland investors were still shifting funds from low-yield savings accounts into the equity market.

However, mainland Chinese equities have experienced a consistent 17% decline since reaching their peak on October 8th of last year, attributable to diminished expectations of substantial stimulus from Beijing and market anxieties regarding the economic consequences of Donald Trump’s second term.

“Some stimulus measures have been a positive surprise,” said Tirumalai, who acknowledged China was still in a “bear market”. “The extension of the trade-in scheme to a wider array of consumer goods for example came earlier than we thought.”

Following the US announcement of comprehensive new sanctions on Russian oil reserves on Friday, oil prices surged to a four-month peak. Brent crude, the global benchmark, increased by 1.6 percent to $81 per barrel, while West Texas Intermediate, the US benchmark, saw a 1.7 percent rise to $77.90 per barrel.