US dollar tracks Treasury yields higher, Bitcoin holds firm

THE US dollar edged higher on Tuesday (Jan 9), tracking a rise in US Treasury yields as investors questioned whether market pricing for interest rate cuts this year is justified.

In cryptocurrencies, Bitcoin held near its strongest level since April 2022 on growing anticipation that the Securities and Exchange Commission will imminently approve spot Bitcoin exchange-traded funds (ETF).

Money market traders price in around 135 basis points worth of easing for the Federal Reserve this year, with approximately a 60 per cent chance that they start cutting in March.

“It’s not really been a straight line for the US dollar this year, which is largely taking its lead from the developments in US fixed-income markets,” said Kamal Sharma, senior G10 FX strategist at Bank of America (BOA).

The US benchmark 10-year yield was up 4.5 basis points on Tuesday to 4.046 per cent. It has continued to rise after hitting its lowest level since July at 3.783 per cent at the end of last year.

“The market is still trying to find its feet in terms of the trajectory and timing of the first US rate cut,” added BOA’s Sharma, who expects the Fed to start cutting rates at its March meeting.

“Our base case scenario is for a soft landing, lower US dollar, and bull steepening, and that broadly should be supportive of risk assets more generally.”

The US dollar index, which measures the greenback against a basket of six currencies, was last up more than 0.1 per cent at 102.42, having risen 1 per cent last week.

The euro last stood at US$1.0934, away from its recent three-week low of US$1.0877, while sterling slipped 0.2 per cent to US$1.2721.

In Asia, data on Tuesday showed core inflation in Japan’s capital slowed for the second straight month in December, taking some pressure off the Bank of Japan to rush into exiting ultra-loose monetary policy.

The yen was little changed following the release, and was last at 144.01 per US dollar, up 0.1 per cent.

The Aussie last bought US$0.6698, away from its three-week low of US$0.6641 hit last Friday. The kiwi slipped 0.2 per cent to US$0.6243 but remained some distance away from Friday’s three-week trough of US$0.6182.

Elsewhere, Bitcoin stood at US$46,708, having scaled a 21-month top of US$47,281 in the previous session.

A raft of investment managers on Monday disclosed the fees they plan to charge for their proposed spot Bitcoin ETFs, in another step towards approval this week by the US securities regulator.

“Investor expectations are justifiably high,” said eToro global markets strategist Ben Laidler, citing increased engagement from the SEC. “This suggests downside to a disappointing result, and some may be tempted to even ‘sell the news’ on a positive outcome.”

Ether, the second-largest cryptocurrency, fell 1.4 per cent to US$2,299.