The U.S. dollar index tacked on 0.02% to 106.01, not far from Tuesday’s high of 106.17, its strongest since May 1
The U.S. dollar held near a 6-1/2-month high 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 bet the Fed may temper the extent of its future rate cuts.
The U.S. dollar index tacked on 0.02% to 106.01, not far from Tuesday’s high of 106.17, its strongest since May 1.
On Wednesday, investors will get the latest figures on U.S. inflation when the October 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 possibility 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 the latest uncertainty for the Federal Reserve 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 nearly a 60% probability of another quarter bp cut priced in for December, down from nearly 84% a month ago, shows 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 indicated they were not ready to judge how fast or by how much to cut interest rates.
Chair Jerome Powell is scheduled to speak on Thursday, ahead of U.S. 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 February 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 stayed 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 dollar.
The dollar edged up nearly 0.17% against the yen to 154.88 after hitting 154.934, its highest against the currency since July 30.
