Dollar holds firm ahead of US inflation, bitcoin targets fresh highs

TOKYO – The U.S. dollar held near a 6-1/2-month peak against major peers and bitcoin was solidly poised just below record highs on Wednesday as markets sized up so-called Trump trades ahead of key U.S. inflation data later in the day.
The dollar is reaping the benefits of Republican Donald Trump’s victory in the U.S. presidential election last week, with investors pricing in policies of lower taxes and trade tariffs under the incoming administration that are seen as inflationary.
The Trump trade has pushed up U.S. Treasury yields as markets wager the Federal Reserve may temper the extent of its future rate cuts.
The President-elect’s Republican Party looks set to control both chambers of Congress when Trump takes office in January, Decision Desk HQ projected on Monday, enabling him to push an agenda of slashing taxes and shrinking the federal government.
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The U.S. dollar index, which measures the currency against a basket of currencies, tacked on 0.02% to 106.01, not far from Tuesday’s high of 106.17, its strongest since May 1.
Bitcoin paused its record-breaking climb, down 0.23% at $87,105.05 after hitting an all-time high of $89,998 on Tuesday. Trump has vowed to make the U.S. “the crypto capital of the planet”.
On Wednesday, investors will get a fresh read on U.S. inflation when the October Consumer Price Index (CPI) report is released later in the day. The core gauge is expected to rise 0.3%, though anything above that could further reduce the chance of a December easing.
“Focus is likely to shift back to inflation and Fed policy in the latter part of the week, but whether that brings an unwinding of Trump trades remains to be seen,” said Charu Chanana, chief investment strategist at Saxo.
Traders are also grappling with fresh uncertainty for the Fed following Trump’s win, potentially leaving the central bank less scope to cut interest rates if prices go up again under the incoming administration.
Markets currently have about a 60% chance of another quarter basis point cut priced in for December, down from around 84% a month ago, according to CME Group’s FedWatch Tool.
Markets got more input from Fed officials, with comments by Minneapolis Fed President Neel Kashkari and Richmond Fed President Thomas Barkin on Tuesday, although both signalled they were not ready to judge how fast or by how much to reduce interest rates.
Chair Jerome Powell is scheduled to speak on Thursday, ahead of U.S. Producer Price Index (PPI) data on the same day and retail sales on Friday.
The euro remained under pressure from political uncertainty as Germany, the bloc’s biggest economy, is set to hold elections on Feb. 23, weeks after the collapse of Chancellor Olaf Scholz’s governing coalition. Meanwhile, markets are weighing potential Trump tariffs against Europe, as well as China.
The euro languished near a one-year low of $1.0596 hit on Tuesday and was last down 0.05% at $1.061875.
Sterling was flat at $1.2746, under pressure from a broadly firmer greenback.
Japan’s wholesale inflation accelerated in October as renewed yen falls pushed up import costs for some goods, data showed on Wednesday, complicating the Bank of Japan’s decision on how soon to raise interest rates.
The dollar edged up about 0.17% against the yen to 154.88 after touching 154.934, its highest against the Japanese currency since July 30.
Elsewhere, the Aussie, which tends to be sensitive to the economic outlook for China, remained under pressure, down 0.02% to fetch $0.6531.
Australian wages rose at the slowest annual pace since late 2022 in the third quarter amid an influx of new workers and an easing in inflation, adding somewhat to the case for cuts in interest rates.