US Dollar Forecast: Will Trump’s Agenda Spark a Bitcoin Breakout and Strengthen the Greenback?

Dollar Eases After Six-Week Rally as Traders Await Trump Policies

The U.S. Dollar Index (DXY) ended the week down 0.25%, breaking a six-week winning streak as traders awaited clarity on President-elect Donald Trump’s policy plans. While the index rose 0.34% on Friday to 109.33, it remained below its two-year high earlier in the week. Market sentiment was influenced by softer U.S. inflation data and increased expectations for Federal Reserve rate cuts in 2025.

Treasury Yields Stabilize Following Inflation Data

Treasury yields steadied on Friday after significant midweek declines triggered by lower-than-expected core inflation figures. The 10-year yield rose slightly to 4.617%, while the 2-year yield increased to 4.278%. Earlier in the week, the benchmark 10-year yield fell by 13 basis points as core inflation slowed to 3.2% year-on-year, below the projected 3.3%.

Federal Reserve Governor Christopher Waller’s comments suggested that the central bank could implement multiple rate cuts if inflation continues to ease. Currently, markets are pricing in 40 basis points of rate cuts for 2025, with traders closely monitoring economic data and the Federal Reserve’s next moves.

Euro and Pound Face Pressures from Weak Economic Data

The euro dropped 0.26% to $1.0276 on Friday, weighed down by ongoing concerns over eurozone economic growth. Meanwhile, the British pound slipped 0.6% to $1.2166, following an unexpected decline in UK retail sales for December, which raised fears of a Q4 economic contraction.

Both currencies remain vulnerable to domestic economic challenges, with attention focused on how policymakers in the eurozone and the UK will respond to the evolving macroeconomic landscape.

Yen Gains as Markets Bet on BOJ Rate Hike

The Japanese yen recorded its strongest weekly performance in over a month, gaining 1% against the dollar and touching a one-month high of 154.98 per dollar earlier on Friday. Speculation of a Bank of Japan rate hike next week has grown, supported by robust wage growth and persistent inflation.

With an 80% chance of a hike now priced in, market participants anticipate further yen strength. However, analysts caution that wide interest rate differentials between the U.S. and Japan could limit the yen’s gains against the dollar.

Bitcoin Rallies as Trump Administration Eyes Crypto Regulation

Bitcoin surged 5.26% on Friday to $105,404.13, buoyed by reports of potential crypto policy initiatives under the incoming Trump administration. Speculation about an executive order prioritizing cryptocurrency and the establishment of a crypto advisory council has boosted sentiment in the digital asset market.

Altcoins like Litecoin also rallied, climbing 30% over two days, while shares of trading platforms Coinbase and Robinhood advanced by more than 4%. The focus remains on regulatory developments and their impact on market adoption.

Market Outlook: Volatility Ahead as Trump Era Begins

The market focus now shifts to President-elect Trump’s inauguration speech and potential policy announcements. With heightened sensitivity to fiscal, monetary, and regulatory signals, traders are bracing for increased volatility. The dollar’s path will likely hinge on Trump’s ability to address economic priorities and how markets interpret his administration’s initial moves.

More Information in our Economic Calendar.