The U.S. dollar remained near a three-week high against major currencies on Monday, as markets anticipate the Federal Reserve will cut interest rates this week, but signal a cautious pace of easing for 2025.
Bitcoin surged above $105,000 for the first time, driven by expectations that President-elect Donald Trump will move forward with a potential strategic bitcoin reserve.
The yen struggled to recover after its worst week since September, following reports that the Bank of Japan is likely to hold off on a rate hike this Thursday.
Sterling faced pressure after data on Friday showed an unexpected economic contraction, with the Bank of England set to announce its policy decision shortly after the BOJ.
The dollar received additional support from rising U.S. Treasury yields. Traders are confident of a quarter-point rate cut from the Fed on Wednesday, but now foresee no further cuts in January, according to CME’s FedWatch tool.
While inflation remains above the Fed’s 2% target, officials have maintained that recent upticks are part of the bumpy path to reduced price pressures, not a reversal of the disinflation trend.
Analysts suggest the Fed will be cautious about renewed inflation, particularly with Trump set to take office in January.
“The U.S. economy has shown resilience amid high interest rates, meaning the potential for inflation to rise if the economy overheats is a challenge the Fed will need to address,” said James Kniveton, a senior FX dealer at Convera.Concerns have arisen that the incoming administration’s policies could be inflationary, but as noted by the Bank of Canada Governor earlier this month, decisions cannot be based on potential U.S. policies, and Fed Chair Jerome Powell may take a similar approach.
The U.S. dollar index, which measures the dollar against the euro, sterling, yen, and three other major currencies, remained steady at 106.86 as of 0053 GMT, after reaching 107.18 on Friday, its highest level since Nov. 26.
The dollar gained 0.1% to 153.87 yen, hitting 153.91 earlier, its highest since Nov. 26.
Sterling rose 0.18% to $1.26315, recovering from its lowest point since Nov. 27, which was $1.26075 on Friday.
The euro inched up 0.12% to $1.05155, after falling to $1.045375 at the end of last week, its weakest since Nov. 26.
Bitcoin surged as much as 3.6% from Sunday’s close, reaching a record high of $106,533.
Trump hinted in a CNBC interview on Friday that he intends to move forward with a plan to create a U.S. bitcoin strategic reserve, similar to the country’s strategic oil reserve.
During his campaign, Trump had promised to make the U.S. “the crypto capital of the planet.”
The CNBC interview “has been a bit of a slow burner, but it’s now driven bitcoin above $105,000,” said Tony Sycamore, an analyst at IG.
“We’re now in uncharted territory, and the next key target for the market is $110,000.”
