The dollar is hovering near a pre-Fed three-week high; Bitcoin surpasses $106,000

This week the focus is on the interest rate decisions of the Federal Reserve, the BOJ and the BoE

The Fed expected a 25 basis point rate cut on Wednesday and is abandoning a January rate cut

Bitcoin climbs to record $106,533

(Updates with afternoon trading)

By Kevin Buckland and Greta Rosen Fondahn

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

Bitcoin rose above $106,000 for the first time, buoyed by signs that newly elected President Donald Trump will move forward with a potential strategic bitcoin reserve.

The euro fell 0.1% on the day to $1.0494 after falling to $1.0453 late last week, its weakest since November 26, after rating agency Moody’s unexpectedly downgraded France on Friday.

The decline in eurozone 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 decline towards its target. 2%.

The US dollar index – which tracks the currency against six others – rose 0.1% to 106.98 at 1220 GMT, after rising to 107.18 on Friday for the first time since November 26.

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

With inflation above the central bank’s annual target of 2%, Fed policymakers have said recent rebounds 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 as Trump takes office in January.

“The US economy has proven resilient despite high interest rates, meaning the potential for inflation to rise if the economy overheats is an issue the Fed will need to address,” said James Kniveton, a senior FX dealer at Convera.

“There are concerns that the new administration’s policies may be inflationary, but as the Bank of Canada governor noted earlier this month, decisions cannot be based on potential U.S. policies, and (Fed Chairman) Jerome Powell could set an example can follow.”

Indeed, investors expect the Fed’s outlook this week will not take into account potential future policy changes.

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

The yen struggled to recover from its biggest weekly drop since September after Reuters and other news media reported that the Bank of Japan was likely to skip a rate hike on Thursday.

The US currency rose 0.1% against the yen to reach 153.92 for the first time since November 26.

Sterling rose 0.33% to $1.2650 from $1.2607 on Friday, its lowest since November 27, when data showed a surprise economic contraction in the British economy.

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

The Bank of England will announce a policy decision just hours after the BOJ.

BITCOIN HAS AN ALL-TIME HIGH

Bitcoin rose as much as 3.6% from Sunday’s close to hit a record high of $106,533, but had fallen to $103,916 in European afternoon trading.

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

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

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

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

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