LONDON — The US dollar remained steady on Tuesday, while Bitcoin held onto its gains ahead of an upcoming deadline for the approval of Bitcoin exchange-traded funds (ETFs) by the Securities and Exchange Commission (SEC).
The dollar rally was restrained by a decline in US consumer inflation expectations, a factor that reinforced traders’ expectations of multiple rate cuts by the Federal Reserve this year.
Meanwhile, Bitcoin maintained its strong position, reaching its highest level since April 2022. This surge in value is attributed to the growing anticipation surrounding the SEC’s potential approval of spot Bitcoin ETFs.
The latest Survey of Consumer Expectations conducted by the New York Fed indicated a decrease in US consumers’ short-term inflation projections, marking the lowest level in almost three years for December.
The upcoming US inflation data release later this week is expected to provide further insight into the extent of potential rate cuts by the Fed this year.
Kyle Rodda, a senior financial market analyst at Capital.com, highlighted the importance of the recent inflation expectations data, stating, The big story … the catalyst, was the data regarding inflation expectations going forward.
Rodda further noted that despite a tight labor market, disinflationary pressures persist in the United States, increasing the likelihood of the Fed implementing rate cuts in the near future.
Market futures currently reflect around 135 basis points of easing priced in for the Fed this year, with a 60 percent probability of rate cuts beginning in March.
Kamal Sharma, a senior G10 FX strategist at Bank of America, expects the Fed to commence rate cuts at the March meeting. Sharma expressed optimism, stating, Our base case scenario is for a soft landing, lower dollar, bull steepening, and that broadly should be supportive of risk assets more generally.
The US dollar index, which measure the currency against a basket of six currencies, remained relatively unchanged at 102.32, following a 1 percent increase last week. The euro stood at $1.0947, while the British pound slipped 0.1 percent to $1.2737.
In Japan, core inflation in Tokyo declined for the second consecutive month in December, alleviating some of the pressure on the Bank of Japan to rapidly exit its ultra-loose monetary policy. The Japanese yen remained largely unaffected by the news, holding at 143.90 per dollar.
Meanwhile, the Australian dollar recovered slightly to $0.6703, moving away from its three-week low of $0.6641. The New Zealand dollar dipped 0.2 percent to $0.6243, remaining distant from its three-week trough of $0.6182.
Turning to cryptocurrencies, Bitcoin maintained its position at $46,713, after reaching a 21-month high of $47,281 in the previous session. Investment managers recently disclosed the fees they plan to charge for their proposed spot Bitcoin ETFs, indicating progress towards SEC approval.
Investor expectations are justifiably high, says Ben Laidler, eToro global markets strategist, acknowledging increased engagement from the SEC. Laidler warns, however, that there may be a downside if the outcome of the approval is disappointing, potentially causing some investors to sell the news.
Meanwhile, Ether, the second-largest cryptocurrency, experienced a 1.4 percent decline, reaching $2,299.
In summary, the US dollar remained steady while Bitcoin held onto its gains as traders eagerly await the SEC’s decision on Bitcoin ETF approval. With US consumer inflation expectations declining and the prospect of rate cuts, the market is closely monitoring upcoming US inflation data. Overall, investors are cautiously optimistic, and the outcome of the ETF approval will have a notable impact on cryptocurrency markets.
