The U.S. dollar remained near a two-year peak on Monday, setting the stage for a critical week as investors focus on Donald Trump’s inauguration speech. The address is expected to provide early insights into his policy direction, which has garnered significant attention in the financial markets.
The Japanese yen showed slight gains, maintaining a one-month high reached last week, as traders speculated that the Bank of Japan might raise its policy interest rate later this week. However, market activity was expected to be subdued with U.S. markets closed for a holiday.
Global attention is also directed at the Middle East after Hamas released three Israeli hostages and Israel freed 90 Palestinian prisoners on Sunday, marking the first day of a ceasefire in a 15-month conflict.
In the cryptocurrency market, investor enthusiasm remained high, with traders awaiting executive orders from Trump that could ease regulatory hurdles and boost the widespread adoption of digital assets. Trump has promoted himself as a “crypto president” and launched a digital token on Friday, which saw a significant surge in value, peaking above $70 with a market capitalization exceeding $15 billion.
With Trump’s inauguration fast approaching, the spotlight is on the immediate actions he will take once in office. At a rally the day before, Trump vowed to impose strict immigration limits and repeal numerous executive orders from the Biden administration. Market strategist Marc Chandler emphasized that the new administration is poised to enact swift changes, with up to 100 executive orders expected on Trump’s first day.
The dollar index, which tracks the U.S. currency against six major counterparts, stood at 109.28 in early trading, close to the 26-month high of 110.17 reached last week. The index has climbed 4% since the U.S. elections in November, driven by expectations that Trump’s policies will spur growth but also lead to inflationary pressures, requiring sustained higher interest rates.
Macquarie’s Thierry Wizman noted that markets are largely in a “wait-and-see” mode regarding tariffs, with any renewed talk of tariffs likely to drive the dollar higher and bond yields up as well.
Last week’s cooler-than-expected core inflation data, dovish comments from Federal Reserve Governor Christopher Waller, and news of gradual tariff increases led traders to price in the possibility of two interest rate cuts in 2025. This shift in expectations weighed on the dollar, which saw its first weekly decline in seven.
The Japanese yen was trading at 156.18 per dollar, near its one-month high of 154.98 reached on Friday. Sources indicated that the Bank of Japan is likely to raise its policy rate at its January 23-24 meeting, barring any market disruptions caused by Trump’s inauguration.
The euro rose 0.14% to $1.0285, though it remained near a two-year low touched last week. The British pound gained 0.12% to $1.21825 as traders continued to grapple with a pessimistic economic outlook for the UK.
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