Dollar hovers near 3-week high before Fed; bitcoin tops $106,000

Federal Reserve, BOJ, BoE rate decisions in focus this week

Fed expected to cut by 25 bps on Wed, forgo January cut

Bitcoin climbs to record $106,533

(Updates with midday trading)

By Kevin Buckland and Greta Rosen Fondahn

TOKYO/GDANSK, Dec 16 (Reuters) – The U.S. dollar hovered close to a three-week high versus other major currencies on Monday, ahead of a week of central bank meetings in which markets expect the Federal Reserve to cut interest rates but signal a measured pace of easing for 2025.

Bitcoin soared above $106,000 for the first time, buoyed by signs President-elect Donald Trump will go ahead with a potential strategic bitcoin reserve.

The euro was down 0.1% on the day at $1.0494, after dipping to $1.0453 at the end of last week, its weakest since Nov. 26, hampered by ratings agency Moody’s unexpectedly downgrading France on Friday.

The decline in euro zone business activity eased this month, a survey showed, while European Central Bank President Christine Lagarde said on Monday the ECB will cut interest rates further if inflation continues to ease towards its 2% target.

The U.S. dollar index – which tracks the currency against six others – was up 0.1% at 106.98 at 1220 GMT, after rising to 107.18 on Friday for the first time since Nov. 26.

Traders are confident of a quarter-point Fed rate reduction on Wednesday but now expect officials to forgo a cut in January, according to CME’s FedWatch tool.

With inflation running above the central bank’s 2% annual target, Fed policymakers have stated that recent upticks are part of the bumpy path to lower price pressures and not a reversal of the disinflationary trend.

But analysts say they are also likely to be wary of renewed inflation with Trump set to take office in January.

“The U.S. economy has been resilient in the face of high interest rates, which means the potential for inflation to rise if the economy overheats is a problem the Fed will need to address,” said James Kniveton, a senior FX dealer at Convera.

“There is concern that the incoming administration’s policies may be inflationary, but as the Bank of Canada Governor commented earlier this month, decisions cannot be based on potential U.S. policy, and (Fed Chair) Jerome Powell may follow suit.”

Investors indeed expect the outlook from the Fed this week will not incorporate potential future policy changes.

“Powell will … likely emphasise that it is still too early for officials to build any major policy changes from the new Trump administration into their outlook,” said Deutsche Bank analysts in a note.

The yen struggled to recover following its largest weekly slide since September after Reuters and other news outlets reported the Bank of Japan was leaning towards skipping a rate hike on Thursday.

The U.S. currency was up 0.1% against the yen, touching 153.92 for the first time since Nov. 26.

Sterling was up 0.33% to $1.2650, pulling up from $1.2607 on Friday, its lowest point since Nov. 27, when data showed a surprise economic contraction in the British economy.

A survey of business activity pointed to a rise in prices in Britain on Monday.

The Bank of England is due to announce a policy decision just hours after the BOJ.

BITCOIN HITS ALL-TIME HIGH

Bitcoin surged as much as 3.6% from Sunday’s close to reach an all-time high of $106,533, but had fallen back to $103,916 in midday European trading.

Trump suggested in an interview with CNBC late last week that he planned to go ahead with a proposal to build a U.S. bitcoin strategic reserve, similar to its strategic oil reserve.

On the campaign trail, Trump had promised to make the United States “the crypto capital of the planet”.

The CNBC interview “has been a bit of a slow burner, but it’s now resulted in that push above $105,000” for bitcoin, said Tony Sycamore, an analyst at IG.

“We’re in blue sky territory here, and the next figure the market will be looking for is $110,000.”

(Reporting by Kevin Buckland and Greta Rosen Fondahn; Editing by Alex Richardson, Kirsten Donovan)