By Ankur Banerjee
SINGAPORE (Reuters) – The dollar was on the defensive on Monday at the start of a crucial week as Donald Trump returned to the White House, with his inauguration speech later in the day the main focus for investors hoping to decipher his immediate policies.
The yen strengthened, holding on to last week’s one-month high as traders bet the Bank of Japan will raise its policy rate this week, pushing short-term borrowing costs to levels unseen since the global financial crisis of 2008.
Trading volume is expected to be limited as US markets are closed due to Martin Luther King Jr. Day.
Cryptocurrency investors remain in party mode, awaiting executive orders from Trump aimed at reducing regulatory roadblocks and promoting the widespread adoption of digital assets.
Seeking cash from the crypto campaign, Trump vowed to become a “crypto president” and launched a digital token on Friday, which at one point soared above $70 for a market value of more than $15 billion. The last one traded around $58, CoinMarketCap showed.
The world’s best-known cryptocurrency was slightly weaker at $102,550 on Monday. Since the US elections in early November, interest rates have risen by 80%, reaching a record last month.
The spotlight is firmly on the policies Trump will implement on his first day in office. At a rally on Sunday, Trump said he would impose strict restrictions on immigration.
Goldman Sachs strategists expect changes in U.S. policy to support the dollar’s strength, but warned of near-term risks due to market expectations for quick action on rates.
Instead, Goldman strategists expect a series of tariff headlines over time, similar to Trump’s first presidency. “We think the storm is just coming. We expect it will pay to be patient.”
WAIT AND SEE
The , which measures the U.S. currency against six peers, was 0.16% lower at 109.16 but hovering close to last week’s 26-month high of 110.17.
The index has risen 4% since the election as traders expect Trump’s policies to boost growth but also be inflationary, necessitating higher interest rates for a longer period.
The euro rose 0.26% to $1.029775, but remained close to a two-year low reached last week as tariff threats weighed on it. Sterling rose 0.27% to $1.2201.
Thierry Wizman, global currency and interest rate strategist at Macquarie, said that when it comes to rates, traders are at best in a wait-and-see mode and at worst largely unwilling to blame disinflation in the US. benefit of the doubt.
“That means any renewed mention of rates… will likely push the USD higher, as well as (bond) yields.”
Last week’s slightly cooler core inflation data, dovish comments from Federal Reserve Governor Christopher Waller, and reports of phased-in rates have led traders to price in the prospect of two rate cuts this year.
Investors are also watching developments in the Middle East after Hamas released three Israeli hostages and Israel released 90 Palestinian prisoners on Sunday. This marked the first day of a ceasefire that ended a fifteen-month war.
The yen was last at 155.98 per dollar, not far from a one-month high of 154.98 on Friday, with sources telling Reuters the BOJ is likely to raise its policy rate this week barring market shocks when Trump takes office .
Governor Kazuo Ueda and his deputy said last week that the central bank will debate whether to raise interest rates, signaling the intention to push borrowing costs higher at a Jan. 23-24 policy meeting.
A BOJ rate hike would be the first since July last year, when the move, combined with weak U.S. jobs data, shocked traders and triggered a global market crisis in early August.
Fred Neumann, HSBC’s chief Asia economist, said economic data in Japan suggests normalization of monetary policy is certainly warranted this year.
The BOJ should have raised rates in December, Neumann said at HSBC’s outlook meeting in Singapore. “So we think it’s right to do this (raise rates) now.”
