Dollar hovers near 3-week high before Fed meeting; bitcoin tops US$106,000
THE US dollar hovered close to a three-week high versus other major currencies on Monday (Dec 16), ahead of a week of central bank meetings in which markets expect the Federal Reserve to cut interest rates but signal a measured pace of easing for 2025.
Bitcoin soared above US$106,000 for the first time, buoyed by signs President-elect Donald Trump will go ahead with a potential strategic bitcoin reserve.
The euro was down 0.1 per cent on the day at US$1.0494, after dipping to US$1.0453 at the end of last week, its weakest since Nov 26, hampered by ratings agency Moody’s unexpectedly downgrading France on Friday.
The decline in eurozone business activity eased this month, a survey showed, while European Central Bank President Christine Lagarde said on Monday the ECB will cut interest rates further if inflation continues to ease towards its 2 per cent target.
The US dollar index – which tracks the currency against six others – was up 0.1 per cent at 106.98 at 1220 GMT, after rising to 107.18 on Friday for the first time since Nov 26.
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 per cent 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.”
Investors indeed expect the outlook from the Fed this week will not incorporate potential future policy changes.
“Powell will ... likely emphasise that it is still too early for officials to build any major policy changes from the new Trump administration into their outlook,” said Deutsche Bank analysts in a note.
The yen struggled to recover following its largest weekly slide since September after Reuters and other news outlets reported the Bank of Japan was leaning towards skipping a rate hike on Thursday.
The US currency was up 0.1 per cent against the yen, touching 153.92 for the first time since Nov 26.
Sterling was up 0.33 per cent to US$1.2650, pulling up from US$1.2607 on Friday, its lowest point since Nov 27, when data showed a surprise economic contraction in the British economy.
A survey of business activity pointed to a rise in prices in Britain on Monday.
The Bank of England is due to announce a policy decision just hours after the BOJ.
Bitcoin surged as much as 3.6 per cent from Sunday’s close to reach an all-time high of US$106,533, but had fallen back to US$103,916 in midday European trading. REUTERS
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