The U.S. dollar edged higher against major currencies on Monday as investors prepared for a critical week of interest rate decisions from the Federal Reserve, Bank of Japan, Bank of England, and other major central banks.
Markets anticipate a 97% chance that the Federal Reserve will lower interest rates by 25 basis points at the conclusion of its two-day meeting on Wednesday, according to CME’s FedWatch tool. U.S. Treasury yields reflected this sentiment, with the benchmark 10-year note yield slipping slightly to 4.391%.
Analysts are closely watching whether the Fed’s expected rate cut will come with hawkish signals. Juan Perez, trading director at Monex USA, noted that while a cut is likely, the central bank may emphasize that inflation and economic conditions remain significant concerns, potentially slowing the pace of further cuts.
The dollar gained 0.16% against the Swiss franc, reaching 0.8945, its strongest level since July. Against the Japanese yen, the greenback rose 0.31% to 154.12, touching an intraday high of 154.48 the highest level since late November. The yen has struggled to recover after reports indicated the Bank of Japan is unlikely to adjust interest rates at its Thursday meeting, following its largest weekly decline since September.
The euro traded higher, up 0.07% to $1.0509, despite political uncertainty in Germany after Chancellor Olaf Scholz lost a parliamentary confidence vote, setting the stage for snap elections in February. A survey showing an improvement in eurozone business activity supported the currency, alongside comments from European Central Bank President Christine Lagarde, who stated that further rate cuts are possible if inflation continues easing toward the 2% target.
The U.S. dollar index, which measures the greenback’s performance against a basket of six major currencies, climbed slightly to 106.88 after briefly reaching 107.16 earlier in the session. On Friday, the index hit its highest level since late November at 107.18.
The British pound regained ground, rising 0.60% to $1.2684 after hitting its lowest point since November 27 last week. The recovery followed data pointing to rising prices in Britain, which could influence the Bank of England’s rate decision on Thursday.
Central bank decisions are also expected this week from Sweden’s Riksbank and Norway’s Norges Bank, adding to a busy week for global monetary policy. Analysts note that while the Fed’s stance remains cautious, other central banks, including the Swiss National Bank and the Bank of Canada, have already moved forward with rate cuts, further supporting the dollar’s strength.
In cryptocurrency markets, Bitcoin surged to a record high above $106,000 after President-elect Donald Trump suggested plans to establish a U.S. Bitcoin strategic reserve, similar to the country’s strategic oil reserve. Trump’s remarks, made during an interview with CNBC, have fueled optimism among crypto investors. Bitcoin reached an intraday high of $107,821 before settling at $106,003, marking a 4.6% increase for the day.
With multiple central bank decisions and ongoing economic uncertainty, markets are bracing for further volatility in both traditional currencies and cryptocurrencies this week.
