Written by Ankur Banerjee
SINGAPORE (Reuters) – The dollar was on the defensive at the start of a pivotal week on Monday as Donald Trump returned to the White House, where his inauguration speech later in the day will be the main focus for investors hoping to decipher his immediate policies.
The Japanese yen rose during Asian hours, holding on to a one-month high set last week, as traders bet the Bank of Japan will raise interest rates this week. However, trading is likely to be thin with US markets closed.
Investors are also watching developments in the Middle East after Hamas released three Israeli hostages and Israel released 90 Palestinian prisoners on Sunday, the first day of a ceasefire that halted the 15-month-old war.
Cryptocurrency investors remain in party mode awaiting executive orders from Trump aimed at reducing regulatory barriers and encouraging widespread adoption of digital assets.
Trump tapped into crypto campaign funds promising to be a “crypto president” and launched a digital token on Friday, which rose to more than $70 at one point with a market value of $15 billion. CoinMarketCap showed that it last traded at $42.
The world's most popular cryptocurrency fell slightly at $101,434 on Monday. The currency has risen 80% since the US elections in early November, reaching a record high in December.
The spotlight is firmly on the policies that Trump will implement on his first day in office. At a rally a day earlier, Trump said he would impose tough immigration restrictions.
Goldman Sachs strategists expect changes in US policy to strengthen the dollar, but they warn of some near-term risks given market expectations of quick action on tariffs.
Instead, Goldman strategists expect a series of headline-grabbing news over time regarding tariffs, similar to Trump's first presidency. “We believe the storm is just beginning. We expect to be patient.”
The index, which measures the US currency against six peers, fell 0.16% to 109.16 but remained close to the 26-month high of 110.17 it touched last week.
The index has risen 4% since the election as traders expect Trump's policies to boost growth but be inflationary, requiring interest rates to remain high for longer.
The euro advanced 0.26 percent to $1.029775, but it is still near the lowest level in two years that it touched last week, affected by threats to impose customs duties. The British pound rose 0.27 percent to $1.2201.
When it comes to tariffs, traders are in a “wait and see” mode at best, and at worst, have been largely unwilling to give falling US inflation a chance, said Terry Wiseman, global FX and interest rates strategist at Macquarie. . Assumption of good faith.
“This means that any renewed mention of tariffs… is likely to push the US dollar higher, as will (bond) yields.”
Slightly cooler core inflation data last week, dovish comments from Federal Reserve Governor Christopher Waller and reports of tariffs being gradually implemented have traders pricing in the possibility of two interest rate cuts this year.
Markets are now pricing in 42 basis points of easing in 2025. Last week's changing outlook weighed on the dollar, which posted its first week of decline in seven years.
In the latest transactions, the yen recorded 156.18 yen to the dollar, a level not far from the highest level in the month of 154.98 that it touched on Friday. Sources told Reuters that the Central Bank of Japan is likely to raise interest rates this week unless shocks occur in the market when Trump takes office.
Governor Kazuo Ueda and his deputy said last week that the central bank will discuss whether to raise interest rates, signaling an intention to raise borrowing costs at the policy meeting scheduled for January 23-24 unless Trump's inauguration speech turns markets upside down.
Fred Newman, chief Asia economist at HSBC, said economic data in Japan suggests that monetary policy normalization is certainly warranted this year.
The Bank of Japan should have raised interest rates in December, Neumann said at an HSBC forecast event in Singapore. “So we think it's a good idea now to do this (raise rates).”
