Dollar, bitcoin slow momentum as markets eye US inflation

The U.S. dollar held below a 6-1/2-month peak against major peers and bitcoin edged further off record highs on Wednesday as markets hit pause on 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, sitting not far from Tuesday’s high of 106.17, its strongest since May 1. Investors are pricing in policies of lower taxes and trade tariffs under the incoming administration that are seen as inflationary. Meanwhile, Republicans inched closer to gaining full control of Congress, which would give the president-elect power to advance his agenda. The Trump trade has also pushed up U.S. Treasury yields as markets wager the Federal Reserve may temper the extent of its future rate cuts . But momentum slowed on Wednesday as markets awaited a fresh read on U.S. inflation, with the October Consumer Price Index (CPI) report to be released later in the day. “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. With investors already viewing Trump policies as inflationary, the market could be “more sensitive” if CPI comes in hotter-than-expected, she added.

The core gauge is expected to rise 0.3% in October.

Fed Chair Jerome Powell is scheduled to speak this week, ahead of U.S. Producer Price Index (PPI) data on Thursday and retail sales on Friday. Markets currently have about a 60% chance of another quarter basis point cut from the Fed priced in for December, down from around 84% a month ago, according to CME Group’s FedWatch Tool. The U.S. dollar index , which measures the currency against a basket of currencies, tacked on 0.04% to 106.03. Bitcoin paused its record-breaking climb, down about 1% at $87,450 after hitting an all-time high of $89,998 on Tuesday. Trump has vowed to make the U.S. “the crypto capital of the planet”. The dollar was up 0.12% against the yen at 154.80 after touching 154.934, its highest against the Japanese currency since July 30. Japan’s wholesale inflation accelerated in October at the fastest annual pace in more than a year as renewed yen falls pushed up import costs for some goods, complicating the Bank of Japan’s decision on how soon to raise interest rates. The euro struggled for support amid political uncertainty as Germany, the bloc’s biggest economy, is set to hold elections on Feb. 23, weeks after the collapse of Chancellor Olaf Scholz’s governing coalition. Meanwhile, markets are pondering potential Trump tariffs against Europe, as well as China. The euro was pinned near a one-year low of $1.0595 hit on Tuesday, and was last down 0.09% at $1.0615. Sterling was nearly flat at $1.27475, under pressure from a broadly firmer greenback. The offshore yuan traded at 7.2354 yuan per dollar , up about 0.14%. RBC strategists believe the greenback’s gains “are not yet exhausted,” with the scale of Trump’s win giving him a “clear electoral mandate to pursue his policy agenda,” they wrote in a note to clients. “Most of Trump’s policy proposals argue in favour of USD strength, even if he himself prefers a weaker currency.” Elsewhere, the Aussie fell 0.05% to fetch $0.6529 . Australian wages rose at the slowest annual pace since late 2022 in the third quarter amid an influx of new workers and an easing in inflation, adding somewhat to the case for cuts in interest rates.