By Kevin Buckland
TOKYO (Reuters) – The U.S. dollar hovered close to a three-week peak against major peers on Monday amid expectations the Federal Reserve will cut interest rates this week but then signal a moderate pace of easing through 2025 .
Bitcoin rose above $105,000 for the first time, buoyed by signs that newly elected President Donald Trump will move forward with a potential strategic bitcoin reserve.
The yen struggled to recover after its worst week since September after Reuters and other news media reported that the Bank of Japan was leaning towards a rate hike on Thursday.
Sterling was also under pressure after Friday’s data showed a surprise economic contraction. The Bank of England will announce a policy decision just hours after the BOJ.
The dollar received additional support from rising US government bond yields. Traders are confident of a Fed rate cut on Wednesday, but now expect officials to abandon a cut in January, according to CME’s FedWatch tool.
With inflation above the central bank’s annual target of 2%, Fed policymakers have said recent rebounds 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 as Trump takes power in January.
“The US economy has proven resilient despite high interest rates, meaning the potential for inflation to rise if the economy overheats is an issue the Fed will need to address,” said James Kniveton, a senior FX dealer at Convera.
“There are concerns that the new administration’s policies may be inflationary, but as the Bank of Canada governor noted earlier this month, decisions cannot be based on potential U.S. policies, and (Fed Chairman) Jerome Powell could set an example can follow.”
The US dollar index – which tracks the currency against the euro, sterling, yen and three other top rivals – was steady at 106.86 as of 0053 GMT, after rising to 107.18 on Friday for the first time since November 26 .
The US currency added 0.1% to 153.87 yen, having previously reached 153.91 for the first time since November 26.
Sterling rose 0.18% to $1.26315 from $1.26075 on Friday, its lowest since November 27.
The euro rose 0.12% to $1.05155 after dipping to $1.045375 late last week, its weakest level since November 26.
Bitcoin rose as much as 3.6% from Sunday’s close, hitting an all-time high of $106,533.
Trump suggested in an interview with CNBC on Friday that he plans to move forward with a plan to build a US bitcoin strategic reserve, similar to its strategic oil reserve.
During his campaign, Trump had promised to make the United States “the crypto capital of the planet.”
The CNBC interview “was a bit of a slow burner, but it has now resulted in a rise above $105,000” for bitcoin, said Tony Sycamore, an analyst at IG.
“We are in blue sky territory here and the next amount the market will be looking for is $110,000.”
(Reporting by Kevin Buckland; Editing by Edwina Gibbs)
