Categories: Business

Dollar Drifts as Traders Prepare for Trump’s Return to the White House

By Ankur Banerjee

SINGAPORE (Reuters) – The dollar was on the defensive at the start of a pivotal week on Monday as Donald Trump returns 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, clinging to a one-month high hit last week, as traders bet the Bank of Japan will raise its key interest rate this week, raising borrowing costs in the short term to levels not seen since the global financial crisis of 2008.

Trading volume is expected to be low due to the closure of U.S. markets for the Martin Luther King Jr. Day holiday.

Cryptocurrency investors remain in party mode, awaiting Trump’s executive orders aimed at reducing regulatory hurdles and promoting widespread adoption of digital assets.

Trump courted crypto campaign money by promising to be a “crypto president” and launched a digital token on Friday, which soared above $70 at one point for a market value north of $15 billion of dollars. It was last trading around $58, CoinMarketCap showed.

Bitcoin, the world’s best-known cryptocurrency, was slightly weaker at $102,550 on Monday. It has jumped 80% since the US elections in early November, reaching a record high last month.

The focus is on policies that Trump will implement on his first day in office. At a rally Sunday, Trump said he would impose strict limits on immigration.

Goldman Sachs strategists expect U.S. policy changes to support dollar strength, but warn of near-term risks from market expectations for quick action on tariffs.

Instead, Goldman strategists are anticipating a series of headline-grabbing news stories over time on tariffs, similar to Trump’s first presidency. “We think the storm is coming. We think it will pay to be patient.”

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The dollar index, which measures the U.S. currency against six of its peers, was down 0.16% at 109.16, but hovered near a 26-month high of 110.17 reached during the week. last.

The index has risen 4% since the election, with traders expecting Trump’s policies to boost growth but also be inflationary, requiring higher interest rates for a longer period of time.

The euro rose 0.26% to $1.029775, but remained close to a two-year low hit last week as tariff threats loomed. The British pound rose 0.27% to $1.2201.

Thierry Wizman, global FX and interest rate strategist at Macquarie, said that when it comes to tariffs, traders are at best in a “wait and see” mode and, at worst, reluctant to give priority to disinflation in the United States. benefit of the doubt.

“This means that any further mention of tariffs … is likely to push up the dollar, as well as (bond) yields.”

Last week’s slightly weaker underlying inflation data, dovish comments from Federal Reserve Governor Christopher Waller and reports of a phasing in of tariffs have led traders to anticipate two reductions in tariffs. interest rate this year.

Investors are also watching developments in the Middle East after Hamas freed three Israeli hostages and Israel freed 90 Palestinian prisoners on Sunday, marking the first day of a ceasefire ending a 15 month old war.

The yen was last at 155.98 per dollar, not far from a one-month high of 154.98 hit on Friday, as sources told Reuters the BOJ was likely to raise its interest rate director this week, barring market shocks when Trump takes office.

Governor Kazuo Ueda and his deputy said last week that the central bank would debate whether to raise it, signaling its intention to raise borrowing costs at a policy meeting on January 23-24.

An increase by the BoJ would be the first since last July, when this decision, coupled with weak employment data in the United States, shocked traders and triggered a rout of the global market in early August.

Fred Neumann, chief Asia economist at HSBC, said economic data in Japan suggests that a normalization of monetary policy is certainly warranted this year.

The BoJ should have raised rates in December, Neumann said at HSBC’s outlook event in Singapore. “So we think now is a good thing to do that (raise rates).”

(Reporting by Ankur Banerjee in Singapore; editing by Christopher Cushing, Shri Navaratnam and Sherry Jacob-Phillips)

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