Dollar Stands Strong as U.S. Inflation Data Looms, Bitcoin Eyes New Peaks

TOKYO – On Wednesday, the U.S. dollar hovered near its highest point in over six months against its major counterparts, while bitcoin remained just shy of its all-time highs. This market behavior occurs as investors evaluate the impacts of so-called Trump trades, awaiting crucial U.S. inflation data due later in the day.

Following Donald Trump’s win in the U.S. presidential election last week, the dollar has benefited significantly. Investors are anticipating Trump’s policies, which are expected to include lower taxes and trade tariffs, potentially leading to higher inflation.

These expectations of a Trump-driven inflationary environment have driven U.S. Treasury yields higher as the markets speculate that the Federal Reserve might reduce the scale of its future rate cuts.

With projections indicating that the Republican Party will maintain control over both houses of Congress upon Trump’s January inauguration, the President-elect is positioned to implement his agenda, which includes significant tax cuts and a reduction in federal government size.

The U.S. dollar index, a measure against a basket of international currencies, slightly increased by 0.02% to 106.01, closely approaching Tuesday’s peak of 106.17, its highest level since May 1.

Meanwhile, bitcoin saw a minor retreat, dropping 0.23% to $87,105.05 after reaching a record $89,998 on Tuesday. Trump has expressed intentions to position the U.S. as “the crypto capital of the world”.

Later on Wednesday, the focus will shift to the U.S. inflation rates with the release of the October Consumer Price Index (CPI). The core CPI is anticipated to climb by 0.3%, but any figure above this could decrease the likelihood of the Fed easing in December.

“This week, the emphasis will likely return to inflation and Federal Reserve policies, but it’s unclear if this will reverse Trump trades,” commented Charu Chanana, chief investment strategist at Saxo.

The recent election results have introduced new uncertainties regarding the Fed’s ability to cut interest rates amid rising prices under the new administration.

Market expectations for another quarter-point rate cut in December have decreased to about 60%, a significant drop from 84% just a month earlier, as shown by the CME Group’s FedWatch Tool.

Fed officials have also provided their insights, with Neel Kashkari from the Minneapolis Fed and Thomas Barkin from the Richmond Fed making statements on Tuesday. Both indicated they were not yet prepared to determine the pace or magnitude of interest rate adjustments.

Fed Chair Jerome Powell is slated to speak on Thursday, which is just before the release of U.S. Producer Price Index (PPI) data and prior to Friday’s retail sales figures.

Political uncertainties in Europe are putting pressure on the euro, especially with Germany’s upcoming elections on February 23, following the recent collapse of Chancellor Olaf Scholz’s government. Additionally, the potential for Trump-imposed tariffs on Europe and China weighs on the market.

The euro was struggling, maintaining levels near a one-year low of $1.0596 reached on Tuesday, last recorded down by 0.05% at $1.061875.

The British pound remained steady at $1.2746, pressured by a generally stronger U.S. dollar.

In Japan, wholesale inflation rates increased in October as the yen’s depreciation drove up the cost of imported goods. This complicates the Bank of Japan’s decision-making regarding when to raise interest rates.

The dollar gained about 0.17% against the yen to 154.88 after reaching 154.934, its highest since July 30.

Elsewhere, the Australian dollar, often influenced by China’s economic outlook, was slightly down by 0.02% at $0.6531.

Australia reported its slowest annual wage increase since late 2022 in the third quarter, amidst a surge of new workers and moderating inflation, potentially strengthening the case for interest rate cuts.