The illustration features U.S. dollar bills, as captured in a Reuters image.
The U.S. dollar declined to its lowest level in a week on Wednesday, marking a three-day slump from its recent peak. This comes as investors reassess the "Trump trade" momentum and digest geopolitical tensions.
Earlier in the week, the dollar, along with other safe-haven currencies like the Japanese yen, experienced a short-lived rally. However, comments from Russia’s foreign minister pledging efforts to prevent nuclear conflict, shortly after Moscow announced lower thresholds for nuclear strikes, shifted market sentiment. The uncertainty surrounding these developments prompted traders to rethink their positions.
Bitcoin, on the other hand, gained traction, edging closer to its all-time high of $94,000. This surge is driven by optimism surrounding potential cryptocurrency-friendly policies under Donald Trump's administration. The cryptocurrency rose by 0.4%, trading at $92,593, following a record high of $94,078.22 the previous day.
The dollar index, which measures the greenback's performance against six major peers, dipped to 106.07 before recovering slightly to 106.27 as of early Wednesday. This marked a retreat from last week’s one-year high of 107.07, which had been fueled by expectations of significant fiscal spending, tighter immigration controls, and tariff hikes under the Trump administration. Economists believe these measures could lead to inflationary pressures and influence Federal Reserve policies.
Investors are closely monitoring Trump's cabinet appointments, including the controversial selection of Wall Street CEO Howard Lutnick as Commerce Secretary. Some of Trump’s picks have sparked debates over their qualifications, adding to market unease. Strategists at DBS noted that the dollar’s recent strength faces challenges from geopolitical tensions and Trump's contentious nominations. However, they pointed out that robust U.S. economic data and the Federal Reserve’s measured approach to interest rate cuts could offer long-term support for the currency.
Federal Reserve Chair Jerome Powell recently stated there is no urgency to lower rates, citing strong economic indicators. This stance aligns with the CME FedWatch Tool’s latest data, showing reduced expectations for a December rate cut, down to 58.9% from 82.5% a week ago.
Despite global uncertainties, the dollar gained 0.39% against the yen, trading at 154.84, supported by rising U.S. Treasury yields. Meanwhile, the euro slipped 0.12% to $1.0585, recovering from a previous dip, and the British pound steadied at $1.2685 as markets awaited inflation data to gauge the Bank of England’s rate policy.
In the crypto space, Bitcoin’s ascent coincides with reports that Trump’s social media company is considering acquiring Bakkt, a cryptocurrency trading platform. This development has bolstered hopes for a regulatory environment favourable to digital assets under Trump’s administration.
