U.S. Dollar Surges Amid Trump Policy Expectations; Yen and Euro Struggle as Key Data Looms
On Wednesday, the U.S. dollar reached a new 6.5-month high against major currencies, while the Japanese yen fell to its weakest level since July. These shifts are largely attributed to "Trump trades" ahead of key U.S. inflation data expected later in the day.
The dollar has gained momentum following Republican Donald Trump’s victory in the recent U.S. presidential election, pushing the U.S. currency to 106.21, its highest level since May 1 against a basket of currencies. Investors are factoring in expectations of lower taxes and new trade tariffs from the incoming administration, policies anticipated to increase inflation and potentially influence the Federal Reserve’s stance on interest rates.
Meanwhile, Republicans are moving closer to securing full control of Congress, giving the president-elect more leeway to implement his agenda.
“There is room for further dollar appreciation,” noted Mitul Kotecha, head of FX & EM macro strategy at Barclays. Kotecha points out that potential U.S. tariffs on global imports, tax cuts, deregulation, and continued economic growth projections are all favorable for the dollar.
Attention on Wednesday will turn to the latest U.S. inflation report, with the October Consumer Price Index (CPI) scheduled for release at 1330 GMT. The core index is expected to rise by 0.3% in October, matching last month’s growth rate.
Analysts at Unicredit remarked, “Signs of headline inflation along with steady core CPI-inflation could further support the dollar,” adding that any temporary dollar retreat could present a buying opportunity, given the current market sentiment.
Fed Chair Jerome Powell is expected to speak later in the week, followed by wholesale price data on Thursday and retail sales on Friday. According to CME Group’s FedWatch Tool, markets estimate a 60% probability of a quarter-point rate cut by the Fed in December, down from about 84% a month ago.
The U.S. dollar index climbed 0.1% to 106.12, marking a fourth consecutive gain.
Bitcoin, meanwhile, cooled slightly from its recent record, down around 1% to $87,428 after reaching an all-time high of $89,998 on Tuesday. Trump has announced intentions to make the U.S. a global leader in cryptocurrency.
Dogecoin also retreated from its peak, following Trump’s decision to name Elon Musk co-leader of a newly established Department of Government Efficiency, whose acronym, DOGE, coincides with the name of the cryptocurrency Musk supports.
The yen breached 155 per dollar, marking its lowest level since July 30. In Japan, wholesale inflation surged in October at the fastest annual pace in over a year, complicating the Bank of Japan’s decision on a potential interest rate hike.
The euro struggled amid uncertainty, with Germany set to hold snap elections on February 23 after Chancellor Olaf Scholz’s coalition government collapsed. Markets are also eyeing potential Trump tariffs on Europe and China.
The euro hovered near a one-year low, down 0.1% at $1.0611, while the British pound dipped to $1.2737, close to its three-month low.
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