TOKYO- The dollar hovered close to a three-week peak versus major peers on Monday amid expectations the Federal Reserve will cut interest rates this week but then signal a measured pace of easing for 2025.
Bitcoin soared above $105,000 for the first time, buoyed by signs President-elect Donald Trump will go ahead with a potential strategic bitcoin reserve.
The yen struggled to recover following its worst week since September after Reuters and other news outlets reported that the Bank of Japan is leaning towards forgoing a rate hike on Thursday.
Sterling was also under pressure after data on Friday showed a surprise economic contraction. The Bank of England is due to announce a policy decision just hours after the BOJ.
The dollar got additional support from climbing US Treasury yields. Traders are confident of a quarter-point Fed rate reduction on Wednesday but now expect officials to forgo a cut in January, according to CME’s FedWatch tool.
With inflation running above the central bank’s 2 percent annual target, Fed policymakers have stated that recent upticks are part of the bumpy path to lower price pressures and not a reversal of the disinflationary trend.
But analysts say they are also likely to be wary of renewed inflation with Trump set to take office in January.
“The US economy has been resilient in the face of high interest rates, which means the potential for inflation to rise if the economy overheats is a problem the Fed will need to address,” said James Kniveton, a senior FX dealer at Convera. “There is concern that the incoming administration’s policies may be inflationary, but as the Bank of Canada Governor commented earlier this month, decisions cannot be based on potential US policy, and (Fed Chair) Jerome Powell may follow suit.”
