The Dollar Edges Higher Against Euro, Bitcoin Falls Amidst ETF Anticipation
The dollar strengthened against the euro on Tuesday, while simultaneously dipping against the yen. Traders eagerly awaited inflation data on Thursday for insights into when the Federal Reserve might cut rates. Meanwhile, bitcoin experienced a slight decline but remained near its highest level since April 2022. This was due to growing anticipation that the Securities and Exchange Commission would soon approve spot bitcoin exchange-traded funds (ETF).
Fed Expectations Drive Dollar Movements
The dollar index hit a five-month low in December as investors anticipated an earlier rate cut by the Federal Reserve due to easing inflation and softer economic data. While the dollar has recovered slightly this year, some believe that the selloff in December was overdone. Nonetheless, expectations surrounding Fed actions are likely to continue influencing dollar movements.
Inflation Data Crucial for Rate Cut Predictions
The upcoming release of the consumer price inflation report for December is expected to be a key factor in determining rate cut predictions. If the data confirms a continued moderation of inflation, expectations for a rate cut in March could increase. However, if the data exceeds expectations, it could reverse some of the pricing related to rate cuts. Currently, Fed funds futures indicate a 64% probability of a rate cut in March.
Market Uncertainty Surrounding Rate Cut Timing
There is still uncertainty in the market regarding the timing and trajectory of the first U.S. rate cut. Some experts, such as Kamal Sharma from Bank of America, expect the Fed to begin cutting rates at their March meeting. A potential soft landing and lower dollar could be supportive of risk assets more broadly.
Market Movements
The U.S. dollar index, which measures the currency against a basket of six currencies, rose by 0.07% to 102.37. The euro dipped by 0.05% to $1.09445, while sterling slipped by 0.23% to $1.2719. In Asia, data showed that core inflation in Japan’s capital slowed for the second consecutive month in December, potentially reducing pressure on the Bank of Japan to quickly exit ultra-loose monetary policy. Lastly, bitcoin experienced a 1.12% decline and was valued at $46,470.
Hot Take: Dollar Strengthens Against Euro While Bitcoin Falls Amidst ETF Anticipation
The dollar has seen mixed movements against major currencies, strengthening against the euro but dipping against the yen. Traders are eagerly awaiting inflation data to gain insights into potential rate cuts by the Federal Reserve. Meanwhile, bitcoin remains near its highest level since April 2022 due to growing anticipation of spot bitcoin ETF approval by the Securities and Exchange Commission.
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