Dec 16 2024: The dollar remained close to a three-week high against major currencies on Monday, bolstered by expectations of a Federal Reserve rate cut this week, coupled with signals of a cautious approach to further easing in 2025.
Bitcoin surged past $105,000 for the first time, fueled by indications that President-elect Donald Trump may proceed with establishing a strategic bitcoin reserve.
The yen continued to struggle following its worst week since September, as reports suggested the Bank of Japan might hold off on a rate hike during its Thursday meeting. Meanwhile, sterling faced downward pressure after data revealed an unexpected economic contraction on Friday, with the Bank of England set to announce its policy decision shortly after the BOJ.
The dollar also drew strength from rising U.S. Treasury yields. While traders widely anticipate a quarter-point rate cut from the Fed on Wednesday, they now expect the central bank to pause further cuts in January, according to the CME FedWatch tool.
Despite inflation running above the Fed’s 2% annual target, officials have emphasized that recent increases reflect the uneven path toward lower inflation rather than a reversal of disinflationary trends. However, concerns linger about potential inflationary pressures from Trump’s incoming administration.
“The resilience of the U.S. economy under high interest rates raises the risk of overheating, which the Fed will need to address,” said James Kniveton, a senior FX dealer at Convera. He added that while some worry about inflationary policies under Trump, Fed Chair Jerome Powell is likely to remain focused on current economic data rather than potential policy shifts.
The U.S. dollar index, which measures the greenback against six major peers, held steady at 106.80 as of 0605 GMT, after climbing to 107.18 on Friday, its highest since November 26.
The dollar gained 0.1% to 153.87 yen, briefly touching 153.91 earlier, its strongest level since November 26. Sterling recovered slightly, rising 0.22% to $1.2636 after dropping to $1.2607 on Friday, its lowest since November 27. The euro edged up 0.2% to $1.0518 after slipping to $1.0453 last week, following Moody’s unexpected downgrade of France’s credit rating on Friday.
Bitcoin jumped as much as 3.6% from Sunday’s close, reaching an all-time high of $106,533. Trump hinted during a CNBC interview on Friday that he plans to move forward with creating a U.S. bitcoin reserve, akin to the strategic oil reserve.
During his campaign, Trump pledged to make the U.S. “the crypto capital of the planet.” Tony Sycamore, an analyst at IG, noted that the interview has gained traction, pushing bitcoin into “blue sky territory,” with the next milestone anticipated at $110,000.
