The U.S. dollar held near a six-and-a-half-month high against major currencies on Wednesday, as investors continued to embrace “Trump trades” following Donald Trump’s recent presidential election victory. Markets are betting on inflationary policies from the incoming administration, including lower taxes and higher trade tariffs, which are anticipated to push up inflation.
These expectations have driven U.S. Treasury yields higher as investors speculate that the Federal Reserve may reduce the scale of its future rate cuts. Trump’s victory is expected to give Republicans control of both Congress chambers, facilitating his agenda for tax cuts and reductions in federal spending. The U.S. dollar index, which tracks the dollar against a basket of currencies, rose slightly by 0.02% to 106.01, hovering close to a six-month peak.
Meanwhile, Bitcoin has paused its record-breaking ascent, trading just below its all-time high of $89,998. Trump has publicly stated his intention to make the U.S. a global “crypto capital.” Bitcoin traded at $87,105.05, down 0.23% on Wednesday.
The October Consumer Price Index (CPI) report, set to release later in the day, will provide a fresh update on U.S. inflation. Analysts anticipate a 0.3% rise in the core CPI, with a higher number potentially dampening the likelihood of a Fed rate cut in December. “Whether this data will lead to a shift in the ongoing ‘Trump trades’ remains uncertain,” noted Charu Chanana, chief investment strategist at Saxo.
Investor uncertainty has also grown regarding the Federal Reserve’s direction after Trump’s election, as inflation under his policies could limit the Fed’s ability to cut rates. The chance of another quarter-point rate cut in December has dropped from 84% last month to around 60%, according to CME Group’s FedWatch Tool.
Fed officials are also adding their voices to the debate, with recent comments from Minneapolis Fed President Neel Kashkari and Richmond Fed President Thomas Barkin reflecting caution on future rate cuts. Fed Chair Jerome Powell is expected to speak on Thursday, with additional economic data, including Producer Price Index (PPI) and retail sales reports, scheduled for later this week.
Across the Atlantic, the euro was pressured by rising political uncertainty in Europe. German Chancellor Olaf Scholz’s coalition collapsed recently, and new elections are scheduled for February 23, fueling investor anxiety. Markets are also watching for potential new U.S. tariffs on Europe and China under Trump. The euro neared a one-year low, trading at $1.061875.
The British pound remained flat against the dollar at $1.2746, while Japan’s yen dipped as renewed yen declines drove up import costs, complicating the Bank of Japan’s rate policy considerations. The dollar gained 0.17% against the yen, trading at 154.88.
Other currencies faced challenges as well. Australia’s dollar dropped by 0.02% to $0.6531, impacted by China’s economic outlook and recent data showing Australia’s annual wage growth at its slowest pace since 2022. This trend could add support for potential rate cuts by Australia’s central bank.
With heightened market focus on the “Trump trades,” inflation data, and Fed policy direction, analysts say the coming days will be pivotal for currency markets worldwide.
