Silke Mayr The U.S. dollar held steady near a six-and-a-half-month high against major currencies on Wednesday, while Bitcoin hovered just below its all-time peak as markets focused on the impact of the so-called “Trump trade” and awaited key inflation data from the U.S.
The dollar has gained momentum following the U.S. presidential election, as markets anticipate inflationary policies under President-elect Donald Trump. Investors expect the incoming administration’s proposed tax cuts and trade tariffs to drive inflation higher, which supports the dollar’s value.
The “Trump trade” has also led to higher U.S. Treasury yields, with markets betting that the Federal Reserve may moderate the scale of its anticipated interest rate cuts in response to rising inflation pressures. With Republicans projected to control both houses of Congress when Trump takes office in January, he is expected to push forward with policies aimed at cutting taxes and reducing government spending.
The U.S. dollar index, which tracks the currency against a basket of other major currencies, rose by 0.02% to 106.01, staying close to its highest level since May 1, when it touched 106.17. Bitcoin, meanwhile, paused its record-breaking rally, edging down 0.23% to $87,105.05, after reaching a new all-time high of $89,998 on Tuesday. Trump’s pledge to make the U.S. “the crypto capital of the world” continues to lend support to Bitcoin’s bullish outlook.
U.S. Inflation Data in Focus
Investors are now awaiting the release of the U.S. October Consumer Price Index (CPI) later in the day, which will offer fresh insight into inflation trends. Analysts expect the core CPI to rise by 0.3%, but any figure above that could reduce expectations for a Federal Reserve rate cut in December.
“The focus is likely to return to inflation and Federal Reserve policy later this week, but whether that will result in a reversal of the Trump trade remains to be seen,” said Charu Chanana, Chief Investment Strategist at Saxo Bank.
There is growing uncertainty over how the Fed will respond if inflation rises under the new administration. If prices increase more than expected, it could limit the central bank’s ability to cut interest rates further.
Markets are currently pricing in a 60% chance of a 0.25% rate cut by the Federal Reserve in December, down from around 84% a month ago, according to CME Group’s FedWatch Tool.
Fed Officials Stay Cautious on Rate Cuts
Comments from Federal Reserve officials have added to the uncertainty. Both Minneapolis Fed President Neel Kashkari and Richmond Fed President Thomas Barkin indicated that they were not yet ready to make any decisions about the pace or extent of interest rate cuts. Federal Reserve Chairman Jerome Powell is set to speak on Thursday, ahead of the release of U.S. Producer Price Index (PPI) data and retail sales figures later in the week.
Euro Struggles Amid Political and Trade Concerns
The euro remained under pressure, weighed down by political instability in Germany and growing concerns over potential trade tariffs from the Trump administration. Germany, the largest economy in the eurozone, is set to hold elections on February 23 following the collapse of Chancellor Olaf Scholz’s coalition government. Meanwhile, the prospect of tariffs on European goods from the U.S. has added further headwinds for the euro.
The euro was last down 0.05% at $1.061875, just above its one-year low of $1.0596 touched on Tuesday.
British Pound Flat Amid Dollar Strength
The British pound remained largely unchanged at $1.2746, pressured by the broad strength of the U.S. dollar. Meanwhile, Japan’s wholesale inflation accelerated in October due to a weaker yen, which pushed up the cost of imports. This added further complexity to the Bank of Japan’s decision on when to raise interest rates.
The U.S. dollar gained 0.17% against the yen, rising to 154.88 after briefly hitting 154.934, its highest level against the Japanese currency since late July.
Australian Dollar Faces Continued Pressure
The Australian dollar remained under pressure, slipping 0.02% to $0.6531. The Australian economy is facing headwinds as wage growth slowed in the third quarter, marking the weakest pace since late 2022. This slowdown, coupled with easing inflation, has strengthened the argument for the Reserve Bank of Australia to consider further interest rate cuts.