Forex
Dollar hovers near 3-week high before Fed; bitcoin tops $106,000
By Kevin Buckland and Greta Rosen Fondahn
TOKYO/GDANSK (Reuters) -The U.S. dollar hovered close to a three-week high versus other major currencies on Monday, 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.
soared above $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% on the day at $1.0494, after dipping to $1.0453 at the end of last week, its weakest since Nov. 26, hampered by ratings agency Moody’s (NYSE:) unexpectedly downgrading France on Friday.
The decline in euro zone 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% target.
The – which tracks the currency against six others – was up 0.1% 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% 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 U.S. 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 U.S. 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 (ETR:) 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 U.S. currency was up 0.1% against the yen, touching 153.92 for the first time since Nov. 26.
Sterling was up 0.33% to $1.2650, pulling up from $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 HITS ALL-TIME HIGH
Bitcoin surged as much as 3.6% from Sunday’s close to reach an all-time high of $106,533, but had fallen back to $103,916 in midday European trading.
Trump suggested in an interview with CNBC late last week that he planned to go ahead with a proposal to build a U.S. bitcoin strategic reserve, similar to its strategic oil reserve.
On the campaign trail, Trump had promised to make the United States “the crypto capital of the planet”.
The CNBC interview “has been a bit of a slow burner, but it’s now resulted in that push above $105,000” for bitcoin, said Tony Sycamore, an analyst at IG.
“We’re in blue sky territory here, and the next figure the market will be looking for is $110,000.”
Investing.com – The US dollar has gained strongly since the US presidential election in November, but these gains are unlikely to limit the hit that US customers are likely to face from tariffs, according to UBS.
At 08:25 ET (13:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower to 108.950, but was around 1.5% higher over the last month, and remained not far from the more than two-year high seen last week.
The theory is that a stronger dollar lowers US import prices, said analysts at UBS, in a note dated Jan. 17. Those lower prices would partially offset the tax payments US consumers must make to the US Treasury when buying imports.
If the US paid for the Chinese imports, then a stronger dollar would automatically reduce the amount of dollars paid (fewer dollars are exchanged to pay the renminbi price). However, the US pays for practically all its imports in dollars, so this does not happen.
If the dollar strengthens, the dollar price is unchanged, unless the exporter consciously chooses to lower the dollar price of the goods sold, UBS added.
An exporter to the US might deliberately lower dollar prices, as (in dollar terms) local currency costs are lower. But local currency costs are only a fraction of a manufacturer’s costs.
“A Chinese electronics manufacturer, importing chips (bought in dollars) and exporting computers to the US (in dollars), will probably keep their dollar prices stable—ignoring currency moves,” UBS added.
The US dollar strengthened against China’s renminbi in 2016 and 2018/19, and US import price inflation for products from China showed no noticeable break with earlier trends.
The preference seems to have been to reroute supply chains as a way of avoiding trade taxes.
Investing.com – The US dollar slumped Monday following a report that indicated that President-elect Donald Trump was set to delay imposing trade tariffs immediately upon his inauguration, an expectation which had boosted the US currency following his November election victory.
At 09:20 ET (14:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 1.1% lower to 108.020, having climbed to a more than two-year high last week.
The Wall Street Journal reported Monday that Trump is planning to issue a broad memorandum on his inauguration that directs federal agencies to study trade policies and evaluate US trade relationships with China and America’s continental neighbors—but stops short of imposing new tariffs on his first day in office.
The memo, which the WSJ has seen, suggests that debates are still ongoing within the incoming administration over how to deliver on Trump’s campaign trail promises for hefty tariffs on imports from trade rivals such as China.
The dollar has gained around 4% since the November presidential election as traders anticipated Trump’s policies will be inflationary, necessitating higher interest rates for a longer period.
“Financial markets are on tenterhooks to see what executive orders newly elected US President Donald Trump will enact on his first day,” said analysts at ING, in a note.
“FX markets are most interested in what he has to say about tariffs and what kind of pain the Oval Office plans to inflict on major trade partners.”
Bank of America (BofA) noted a significant increase in repo rates during the week of January 13 due to heightened liquidity demand triggered by tax payments and limited funding provided by the People’s Bank of China (PBoC).
The liquidity squeeze was most noticeable on January 16, the day following the tax payment deadline, with DR007 and R007 reaching 2.34% and 4.19%, respectively.
The PBoC maintained its stance on defending the exchange rate stability, resulting in the tightness of (RMB) liquidity being felt in the offshore market as well.
On January 9, the central bank announced it would issue RMB60 billion of 6-month bills in Hong Kong, a significant increase compared to previous issuances. The coupon rate of 3.4% was notably higher than the December issuance, reflecting the tightness of CNH liquidity and subdued demand from investors.
The December FX settlement balance by banks’ clients fell further to a deficit of US$10.5 billion, the first deficit reading since July 2024. A key change from the previous month was a sharp increase in USD demand for service trade. Reports also suggest that domestic importers have been actively purchasing USD via FX forward to hedge against tariffs risk in recent weeks, which has been exerting upward pressure on forward points.
On January 13, the PBoC increased the cross-border macroprudential parameter to 1.75 from 1.50. This move allows domestic corporations and Financial Institutions (FIs) to conduct more cross-border borrowing.
Given the widened interest rate gap between China and overseas, BofA believes this is more of a symbolic move by the PBoC to anchor market’s expectation on FX.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
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